U.S. stocks closed higher Thursday, extending the previous day's massive intraday reversal as oil prices rose.
The major averages rallied into the close, with the S&P 500 rising 1 percent to top the 1,950 level many analysts consider a resistance level.
The Dow Jones industrial average closed up more than 200 points, with United Technologies and Goldman Sachs contributing the most to gains.
"I still think the shorts haven't been neutralized. I think there's a bit of a short squeeze going on," said Daniel Deming, managing director at KKM Financial.
The major averages extended gains as oil turned higher, briefly rising 3 percent near $33 a barrel. Earlier, a brief 3 percent drop in oil prices weighed on U.S. stocks, which opened higher after a better-than-expected durable goods report but struggled to hold those opening gains.
"I think we're still tethered to oil," said Jack Ablin, chief investment officer at BMO Private Bank. "I'm not willing to declare the end of this correlation."
U.S. crude oil futures settled up 92 cents, or 2.86 percent, at $33.07. The gains came after a Bloomberg report that the Venezuelan oil minister Eulogio Del Pino said his country, Saudi Arabia, Russia, and Qatar had settled on meeting in March.
Financials gained about 1.4 percent to lead all 10 S&P sectors higher in the close. Energy squeezed out a 0.2 percent gain.
"I think (the earlier decline was) profit taking. I think we're at a little bit of an inflection point here, looking for a new catalyst," said Tom Wright, director of equities at JMP Securities, noting that driver could come from some announcements of major corporate deals.
"When energy stocks found some stability, the financials got really soft and that was a concern," he said. "The financials are OK since then and we'd like to see a much bigger bounce in the financials to gain more confidence."
Year-to-date, financials are still more than 11 percent lower as the worst performing S&P 500 sector, with health care the second-worst.
Major averages 5-day performance
Also weighing on sentiment earlier was the overnight 6.4 percent plunge in the Shanghai composite, while the Hang Seng lost nearly 1.6 percent. In contrast, Japan's Nikkei 225 rose 1.4 percent.
"From a fundamental standpoint the market's in a wait and see mode and to a large extent remains at the mercy of oil," said Adam Sarhan, CEO of Sarhan Capital. "As goes oil, so goes the other risk assets."
Treasury yields held lower, with the 2-year yield at 0.71 percent and the 10-year yield at 1.70 percent.
The U.S. dollar index traded little changed, with the euro at $1.102 and the yen at 112.92 yen against the greenback.
European stocks pared gains to close but held about 2 percent higher. The STOXX Europe 600 Banks outperformed, briefly trading more than 4 percent higher but still more than 30 percent below its 52-week intraday high.
U.S. stock index futures held mostly higher after January orders for durable goods jumped 4.9 percent, topping expectations with the largest increase since March and reversing December's revised 4.6 percent plunge. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 3.9 percent after tumbling by a revised 3.7 percent in December, Reuters said.
"Favorable technicals and incrementally positive news should lend to perhaps a higher trend today," BMO's Ablin said.
The major U.S. averages staged a massive reversal Wednesday to close higher as some stabilization in oil prices offset declines in financials.
St. Louis Fed President James Bullard, a voting member of the Fed, said on CNBC's "Squawk Box" that he's not too concerned about a global recession but he does see a "lower trend growth rate." He also attributed the recent market volatility to traders factoring in all at once policymakers' projections for four hikes in 2016.
Read MoreCiti: Risk of global recession rising
Separately, Bullard late Wednesday reiterated his opposition to further interest rate hikes given that U.S. inflation expectations have fallen and threaten the U.S. central bank's credibility.
Atlanta Fed President Dennis Lockhart reiterated Fed policy for rate hikes remains data dependent, according to StreetAccount.
San Francisco Fed President John Williams reiterated Thursday he expects the Fed to continue gradually raising interest rates. In a speech aimed at pushing back on political efforts to clamp down on Fed independence by imposing a Taylor-like rule on decisions, Williams said the central bank should avoid tying its policy-making to a single rule and continue to embrace an eclectic approach, according to Reuters.
Major U.S. Indexes
On Wednesday, the Dow Jones industrial average reclaimed a 266-point drop — its largest recovery of losses by points since 2008 — and then went on to close up 53 points. The S&P 500 erased intraday losses of more than 1 percent for the third time in 2016 and closed up 0.4 percent.
Read More Early movers: BUD, DPZ, BBY, LB, RATE, HPQ & more
The Dow Jones industrial average closed up 212.30 points, or 1.29 percent, at 16,697.29, with United Technologies leading all constituents higher.
The Dow transports closed 1.08 percent higher, with Avis Budget leading advancers and JetBlue the greatest decliner.
The closed up 21.90 points, or 1.13 percent, at 1,951.70, with financials leading all 10 sectors higher.
The Nasdaq composite closed up 39.60 points, or 0.87 percent, at 4,582.20.
The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, held near 19.5.
About three stocks advanced for every decliner on the New York Stock Exchange, with an exchange volume of 951 million and a composite volume of 4.1 billion in the close.
Gold futures settled 30 cents lower at $1,238.80 an ounce.
—Reuters contributed to this report.
On tap this week:
Thursday
Earnings: AB InBev, Bayer, Apache, Best Buy, Campbell Soup, Domino's Pizza, Kohl's, Chico's FAS, Sears Holdings, SeaWorld, Baidu, Autodesk, Gap, Intuit, Kraft Heinz, Herbalife, Live Nation Ent., Noodles & Co., Weight Watchers
G-20 finance ministers meet in Shanghai
Friday
G-20 meets in Shanghai
Earnings: J.C. Penney, Foot Locker, Sotheby's, Sempra Energy, AmericanTower, Centerpoint, Liberty Media, Telefonica, Rowan Cos
8:30 a.m. Real GDP Q4 (second reading); international trade
8:30 a.m.: Personal income, consumer spending
10 a.m. Consumer sentiment
Saturday
Earnings: Berkshire Hathaway
*Planner subject to change.
More From CNBC.com: