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(Reuters) – Stocks bounced back in midday trade on Tuesday as investors snapped up beaten down shares in energy and industrial sectors while Spanish bond yields came off their highs, giving relief to the market.

The S&P 500 is down 6.3 percent for the month on concerns about the ongoing financial crisis in Europe and signs of slowdown in the U.S. economy. Even after a $125 billion aid package to Spain that was announced over the weekend, the S&P fell more than 1 percent on Monday, as questions remained about the terms of the bank-rescue deal and the impact it could have on Spanish debt levels.

Trading was volatile. Wall Street dipped earlier as yields on Spain’s 10-year bond hit a euro-era high, pointing to continued stress in the nation’s debt markets shortly after an announced European Union bailout.

“Into their close, both Spanish and Italian bonds are bouncing off their (price) lows. The daily egg shells we walk on this week over Spain will of course be followed by Sunday’s election in Greece and what, if anything, the FOMC will announce next week,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

The weekend elections in Greece are viewed as a major headwind that could result in the country leaving the euro zone.

Nicholas Colas, chief market strategist at the ConvergEx Group in New York, predicted swings in equities around the close of European markets, “since that’s where all our catalysts are coming from.

“It is nice to see us holding above 1,300 (on the S&P), which is an important number psychologically, but it is very possible that we see another disappointing sell-off like yesterday,” he added.

The Dow Jones industrial average .DJI was up 111.52 points, or 0.90 percent, at 12,522.75. The Standard & Poor’s 500 Index .SPX was up 10.07 points, or 0.77 percent, at 1,319.00. The Nasdaq Composite Index .IXIC was up 24.87 points, or 0.89 percent, at 2,834.60.

Volatility around the close of European markets is expected to persist until more clarity is received on Greece’s government makeup and the stability of Spain’s banking system.

Energy .GSPE and material .GSPM shares, both of which are heavily tethered to sentiment about Europe, were the top gainers. Energy stocks were up 1.4 percent and materials stocks were up 1.2 percent.

Among the most active, Valero Energy Corp (VLO.N) rose 4.9 percent to $22.95 while Halliburton Inc (HAL.N) was up 2.1 percent to $28.07. U.S. Steel Corp (X.N) rose 2.9 percent to $18.40.

Michael Kors Holdings Ltd (KORS.N) rose 5.2 percent to $40.16 after posting stronger fourth-quarter profit growth and giving a strong full-year outlook.

May U.S. import prices fell 1 percent from April, as expected, according to Labor Department data. Export prices fell 0.4 percent, compared with the expectation for a drop of 1 percent.

(Editing by Dave Zimmerman)