The last-hour rally came after oil futures surged to nearly $43 a barrel, raising worry among investors already nervous about slower growth in the second half of the year. In the midst of the political conventions and ahead of the presidential election and the Olympics, fears about terrorism are running high, and every economic indicators seems to take on heightened significance.

"The market has been kind of lumbering along with all these worries about the geopolitical situation. No matter what news is out there, it seems to see it as a negative," said Jay Suskind, head trader at Ryan Beck & Co. "When you throw in rising oil prices on top of that, it's just seen as another tax on the economy ... which could eventually sap some of the strength out of the market."

There was no late news to turn the market around; stocks have dropped so far during four weeks of selling that investors are looking to take a chance on bargain-priced shares.

According to preliminary results, the Dow Jones industrial average closed up 31.93, or 0.3 percent, at 10,117.07, making a dramatic recovery from a low of 9,994.22.

The broader gauges also came back from their session lows, but were mixed at the close. The Nasdaq composite index fell 10.84, or 0.6 percent, to 1,858.26, largely on weakness among semiconductors. The Standard & Poor's 500 index finished up 0.59, essentially flat, at 1,095.42.

The Commerce Department reported orders to U.S. factories for big-ticket items rose 0.7 percent in June, slightly lower than what analysts had forecast. The gain in orders for durable goods — items expected to last three or more years — was good news after two months of declines, as it offered some hope that the rebound in the nation's manufacturing sector is no longer in danger of stalling.

Investors were less than impressed, however, as the lower-than-expected number comes after a several other business barometers showed weakness for June.

Most analysts agree the slowdown is temporary, but trading has been lackluster through the current earnings season because of a number of downbeat outlooks.

Adding to that, September crude oil futures on the New York Mercantile Exchange closed up 78 cents at $42.62 a barrel, as Russian oil giant Yukos warned it might have to shut down production pending the enforcement of a Moscow judge's order, raising concerns about global and domestic supply. Oil prices were lower in after-hours trading.