Marquis Daniels had a strong final quarter and finished with 13 points in Indiana's franchise-best third straight victory in New York.
Zach Randolph scored 26 points for the Knicks, who dropped their seventh straight. Jamal Crawford had 21, but wasn't close on a contested 3-point try before the buzzer, and Eddy Curry scored 20.
New York had a 49-35 rebounding advantage against an Indiana team that is still playing without star forward Jermaine O'Neal, but wasted that by committing 18 turnovers that led to 35 points.
The Knicks led 86-79 after Renaldo Balkman's follow shot with 8:22 remaining. Daniels hit a pair of 3-pointers, and Rush had a 3 and another jumper during a 15-6 stretch, with Daniels' two free throws giving Indiana a 94-92 lead with 3½ minutes to play.
Randolph's three-point play put New York back ahead, but Jeff Foster was given an open lane for a dunk, then Rush had two more buckets to make it 100-95 with 1:26 left. Randolph made a 3 and Balkman blocked a shot in the final seconds, giving the Knicks a final chance.
Nate Robinson was back for the Knicks after missing a game with a bruised left quadriceps, but played only 9 minutes. Starting forward Quentin Richardson was out with a sprained right ankle during Monday's loss to the Clippers.
It was yet another blown fourth-quarter lead for the Knicks, but expectations are so low these days that they don't even need to win to feel like they're making progress.
"You can say we're not getting better because we haven't won games, but I think over the last couple of weeks we have gotten better as a basketball team," coach Isiah Thomas said before the game. "However we haven't completed it with a win. Hopefully we'll get one tonight."
They didn't.
Granger hit all four shots in the first quarter, helping the Pacers take a 29-26 lead. The game was tied at 55 at halftime, with Randolph scoring 15 points and Curry going 6-for-6 and adding 14. The Knicks shot 54 percent but their nine turnovers led to 19 points.
Randolph's 3-pointer with 24 seconds left in the third quarter gave the Knicks a 77-75 lead entering the final period.
