Updates to U.S. market close

By Sabrina Valle and Pranav Kashyap

March 2 (Reuters) - U.S. stocks ended close to flat on Monday after a volatile session that saw shares drop early following weekend U.S. and Israeli air strikes on Iran, but there were bounces throughout the day as investors bought on dips.

Coordinated U.S. and Israeli strikes on Iran over the weekend killed Tehran's Supreme Leader, and sent shockwaves through global markets. Oil prices jumped and most overseas stock indexes closed lower.

But bargain-hunting U.S. investors bought on dips after the early selloff, showing an expectation that the disruptions from the conflict will be limited.

"Market participants think this is all just temporary and that the problems in the oil patch will disappear," said Bill Smead, founder and chairman of Smead Capital Management.

According to preliminary data, the S&P 500 .SPX gained 0.54 points, or 0.01%, to end at 6,879.42 points, while the Nasdaq Composite .IXIC gained 72.40 points, or 0.32%, to 22,740.61. The Dow Jones Industrial Average .DJI fell 86.89 points, or 0.18%, to 48,891.03.

The clash initially boosted defense shares and energy prices and pressured travel and interest‑sensitive sectors. Later, investors ran to tech and weighed how long the Middle East conflict could run and what the conflict means for inflation and Federal Reserve policy.

Smead said investors were reverting to familiar, high-performing stocks like Nvidia, the Magnificent Seven technology stocks and defense sectors.

"When people get scared, they go back to what is comfortable," he said.

In Europe and Asia, stock markets sank under the weight of surging oil prices and war‑driven uncertainty.

The French and German stock markets fell more than 1%. Japan’s Nikkei 225 slid 1.73%, having plunged as much as 2% at the open.

Energy companies, whose profits rise alongside oil prices, outperformed, while travel and airline stocks sank due to flight cancelations, higher jet‑fuel costs and widespread Middle East airspace closures.

Several oil and gas facilities in the Middle East stopped production. U.S. crude prices settled up 6% at $71.23 a barrel after being up twice as much during the session.

Defense stocks also got a boost, with the main U.S. defense equity benchmark, the Dow Jones U.S. Defense Index DJUSDN, trading up.

President Donald Trump also told CNN the "big wave" is yet to come, although some Middle Eastern countries were lobbying U.S. allies to persuade a swift end to the war.

AES Corp AES.N fell after a consortium led by BlackRock-owned BLK.N Global Infrastructure Partners and equity firm EQT AB EQTAB.ST agreed to acquire the utilities company for $33.4 billion at a discount to its last close.

(Reporting by Sabrina Valle in New York; Pranav Kashyap, Johann M Cherian, Shashwat Chauhan and Ragini Mathur in Bengaluru; Editing by Sherry Jacob-Phillips, Anil D'Silva, Maju Samuel and David Gregorio)

((ragini.mathur@thomsonreuters.com))