US Stocks: Bear market bounce (ext.)

NEW YORK (CNNMoney) -- In another day of sharp swings, U.S. stocks closed significantly higher, despite clocking large losses through much of the day. By Tuesday's end investors ignored the S&P 500's early slide into bear territory and furiously bought back into stocks.

The S&P 500 (SPX) closed up 25 points, or 2.3%. The Dow Jones industrial average (INDU) ended up 153 points, or 1.4%. The Nasdaq Composite (COMP) edged 69 points higher, or 3% by the close.

Both the Dow and Nasdaq still remain just a few percentage points shy of falling into bear territory. Investors continue to fret about Europe's worsening debt situation and a possible slide into a global recession.

"We're expecting continued heightened volatility until we get resolution on Europe," said Thomas Higgins, global macro strategist at Bank of New York's asset management division.

Adding to the fears surrounding Europe, Moody's downgraded Italy's sovereign debt shortly after the U.S. markets closed.

Despite the late-afternoon rally, certain trading themes are also causing concern for investors. Among them: stocks moving closely in connection with one another, and stocks, bonds and commodities selling off in unison over the past few weeks.

"When things get highly correlated, historically, that precedes big down moves," said Sal Catrini, equity product manager at Cantor Fitzgerald.

Not only did the S&P 500 fall into what's considered a bear market Tuesday -- tumbling 20% from its recent April 29 high of 1,363.61 -- but the index also dropped just below a technically and psychologically significant barrier of 1,100 Monday.

"Once 1,100 was broken, people started to see significant downside," said Dan Greenhaus, chief global strategist at BTIG. In the summer of 2010, the S&P 500 traded around 1,025 and 1,050. Greenhaus says that those levels could be the next likely floor.

"S&P in all likelihood is launching another leg down," said Clark Yingst, chief market analyst and equity strategist at Joseph Gunnar.

Fed Chairman Ben Bernanke offered a grim assessment of the U.S. and global economy. His pledge to take further action if necessary to promote a recovery did little to sway investors. Stocks staged the late-day rally long after Bernanke's comments.

"An easier Fed is better than a tightening Fed," said Greenhaus. "Market participants have probably convinced themselves there's little the Fed can do now."

Casting a shadow over all of Bernanke's comments and any economic reports in the U.S. is an ambient apprehension over whether Greece can meet its debt obligations, and what a possible default might mean the global banking system.

The dollar was little changed against the euro and Japanese yen, but gained slightly against the British pound.

Oil for November delivery moved up 2 cents to $77.63 a barrel.

Gold futures for December delivery shaved $41.70 to $1,616.00 an ounce.