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Small caps lead late-day bounce back

After a daylong pummeling, stocks shed much of their worst losses in the final hour, as small caps turned positive.

"They were the most oversold and that's why they're trying to come back," said Art Cashin, director of floor operations for UBS.

The Russell 2000 was up 1 percent at the market close, while the Dow, off 173, had recovered about 300 points. Small caps, at stretched valuations earlier in the year, were the first group to fall into correction territory and were seen as a barometer warning of a broader market selloff.

Fears of everything from global growth to Ebola fanned selling in stocks and forced a dramatic capitulation trade in Treasurys.

"Greece is only in Greece. Ebola's not getting out of control and corporate profitability looks pretty good to me," said Steve Massocca of Wedbush Securities.

Europe soured the mood early, as traders focused on headlines about Greece considering abandoning its bailout.

Weak European data has been a concern to markets, as traders watch to see if the European Central Bank can deliver an easing package strong enough to help Europe's weakest links.

Then a disappointing U.S. retail sales report cast doubts about the U.S. economy, viewed as the strongest pillar of growth in the world.

"I think the extent of the selling was pretty stupid to begin with. You had panic selling this morning. It certainly has the feel of capitulation in a lot of names but I would say for the broader stock market. I could point to a whole list of securities that were approaching their 2008 lows," said Massocca, noting that some beaten names in the MLP space were recovering ahead of the closing bell.

Traders were rattled earlier in the day on new reports about a second Dallas Ebola patient.

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Read MoreRetail sales give cautionary sign on demand