US STOCKS-S&P 500, Dow scale fresh three-month peaks

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* MoneyGram surges on report of takeover offer from Western Union

* Airlines, cruise line operators climb as economies reopen

* Indexes: Dow up 0.66%, S&P rises 0.28%, Nasdaq dips 0.33% (Adds comment, details; updates prices)

June 2 (Reuters) - The S&P 500 and the Dow Jones indexes hit three-month highs on Tuesday as optimism about the reopening of the economy after weeks of coronavirus lockdowns countered concern over more disruptions from the street protests that have spread across the country.

Stocks in the cyclical sectors, including financials , industrials and energy provided the biggest boost to the two indexes.

Improving economic data, trillions of dollars in stimulus and the restarting of businesses have helped the benchmark S&P 500 recover about 40% from its March lows, leaving it only about 10% below a record high hit in mid-February.

“The U.S. equity market continues to rally despite the fact that we’re clearly in a recession,” said Keith Bliss, managing partner at iQ Capital (USA) LLC. “Most investors believe that companies will be able to come out of this on the other side, actually in better shape.. more efficient and more streamlined.”

Traders were keeping a close eye on tensions between the United States and China over the novel coronavirus and trade, as well as the anti-police brutality marches and rallies that have turned violent in some cities.

Overnight, demonstrators set fire to a strip mall in Los Angeles, looted stores in New York City and at least five police officers were hit by gunfire, hours after President Donald Trump vowed to deploy the U.S. military to regain control.

“If this goes on much longer the market will start to reflect the nervousness of the populace and the economy here in the United States,” Bliss said.

At 11:00 a.m. ET, the Dow Jones Industrial Average was up 168.85 points, or 0.66%, at 25,643.87, the S&P 500 was up 8.45 points, or 0.28%, at 3,064.18. The Nasdaq Composite was down 31.73 points, or 0.33%, at 9,520.32.

Technology-focused companies, including, Facebook Inc and Apple Inc which have led the market recovery, were marginally lower on Tuesday.

Shares of Western Union jumped 11.1% after a report the money transfer company has made an offer to buy its smaller rival MoneyGram International Inc.

MoneyGram shares soared 33.6%.

Advancing issues outnumbered decliners by a 2.97-to-1 ratio on the NYSE and by a 1.41-to-1 ratio on the Nasdaq.

The S&P index recorded 10 new 52-week highs and no new lows, while the Nasdaq recorded 56 new highs and three new lows. (Reporting by Devik Jain and Medha Singh in Bengaluru, Pawel Goraj in Gdansk; Editing by Saumyadeb Chakrabarty, Bernard Orr and Uttaresh.V)