The Dow Jones industrial average lost 59.25 points to close at 6,696.48, sliding over the last hour after erasing all but 10 points of a 931/2-point afternoon plunge.
Broader stock measures also faltered with bonds in a late rebound.
The Standard & Poor's 500-stock index fell 7.08 to 770.48. The Nasdaq composite index fell 14.55 to 1,363.82.
Stocks opened with modest losses, but the morning slide steepened as bonds turned lower, boosting interest rates.
Bond prices were hurt by supply pressures from this week's auction of new Treasury securities and some weakening in the dollar, which makes the payoff on U.S. securities less attractive in foreign currencies.
As bonds fell today, the yield on the 30-year Treasury bond - a key determinant of borrowing costs that has surged in recent weeks amid renewed inflation jitters - jumped from late yesterday's 6.86 percent to as high as 6.92 percent, a level it hasn't finished a day at since late September.
Stocks started to recover in the afternoon as Treasury prices trimmed the day's losses. But the rebound soon faltered in the bond market, with stocks trailing lower into the close as the long-bond yield settled at 6.88 percent.
Declining bond prices also triggered a late wave of profit-taking yesterday, abruptly ending the Dow's first trip above 6,900.