* U.S. stocks close above lows after following Europe, Asia down
* Oil tumbles after Saudi comments
* Saudis under pressure as Turkey comments on Khashoggi death
* Demand rises for gold and Treasuries in safety bid
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Updates to close)
By Sinéad Carew
NEW YORK, Oct 23 (Reuters) - Wall Street indexes fell in Tuesday's volatile session though they had pared losses sharply by the closing bell as investors looked for bargains, but oil dropped sharply on demand worries.
After falling as much as 2.3 percent in the morning, the S&P 500 gradually regained ground as the day wore on.
Oil prices plunged about 5 percent to two-month lows as the equities sell-off raised worries about demand growth and Saudi Arabia said it could supply more crude quickly if needed, easing concerns ahead of U.S. sanctions on Iran.
Benchmark U.S. Treasury prices rose, sending yields to their lowest levels in almost three weeks as declining stocks worldwide fed demand for low-risk debt.
The U.S. dollar recovered some of its early losses in the afternoon as the stock sell-off eased, but the greenback remained down against other safe-haven currencies.
On top of geopolitical worries and Nov. 6 U.S. congressional elections, Oliver Pursche, chief market strategist at Bruderman Asset Management in New York, cited an uncertain growth outlook amid a U.S.-China trade war.
“There’s the question of impact on global growth from tariffs and the ongoing trade war. (U.S.) President Trump and (Chinese) President Xi have agreed to meet during the G20 summit, but that’s post-election, Pursche said. "It’s clear that nothing is going to happen for three to four weeks.”
But after hitting a low of 2,691.43 around 10:20 a.m. ET (1420 GMT), the S&P gradually revived though trading was volatile.
"Earnings as a whole have been good. ... The market doesn't appear overly expensive. It's setting up to be a good buying opportunity," said Gary Bradshaw, portfolio manager of Hodges Capital Management in Dallas, adding that he bought stocks on Tuesday.
"We've had what we think is a temporary correction in a bull market. Typically, you'll see two or three corrections that are 5 to 10 percent on average per year."
The Dow Jones Industrial Average fell 125.98 points, or 0.5 percent, to 25,191.43, the S&P 500 lost 15.19 points, or 0.55 percent, to 2,740.69 and the Nasdaq Composite dropped 31.09 points, or 0.42 percent, to 7,437.54.
Of the S&P 500's 11 major sectors, energy was the biggest percentage decliner, last down 2.7 percent due to the tumble in oil futures.
U.S. crude fell 4.4 percent to $66.30 per barrel and Brent was last at $76.39, down 4.3 percent on the day.
Pressure mounted on Saudi Arabia over the death of journalist Jamal Khashoggi after Turkish President Tayyip Erdogan said intelligence and security institutions have evidence Khashoggi's death at a Saudi consulate in Istanbul this month was planned. He dismissed attempts by Riyadh to blame the "savage" killing on rogue operatives.
U.S. President Donald Trump had said Monday he was not satisfied with what he heard from Saudi Arabia about the death but did not want to lose investment from Riyadh.
Benchmark 10-year notes last rose 7/32 in price to yield 3.1676 percent, from 3.194 percent late on Monday.
The dollar index fell 0.09 percent, with the euro up 0.07 percent to $1.1471.
The Japanese yen strengthened 0.35 percent versus the greenback at 112.44 per dollar, while the British pound was last trading at $1.2986, up 0.19 percent on the day.
Spot gold added 0.7 percent to $1,229.90 an ounce after hitting its highest level since mid-July as investors looked for safety.
Emerging market stocks lost 2.08 percent. MSCI's broadest index of Asia-Pacific shares outside Japan closed down 2.2 percent.
Additional reporting by April Joyner, Kate Duguid, Karen Brettell in New York, Marc Jones in London; editing by Dan Grebler and Phil Berlowitz