By Akane Otani and Riva Gold

-- S&P 500 up 0.6%; Stoxx Europe 600 up 0.3%; Nikkei basically flat

-- 10-year Treasury yield rises to 1.867%

-- Peso rises 0.9% against the U.S. dollar

U.S. stocks and Treasury yields climbed Tuesday, reversing earlier losses, as polls opened in a fractious U.S. presidential race.

Stocks traded in a tight range earlier in the day, but by early afternoon, rose to session highs in a broad market rally that reversed many of the morning's top trades. Oil prices gained, U.S. government bonds sold off and the peso, seen as the most vulnerable currency to the election outcome, strengthened against the dollar.The CBOE Volatility Index -- which is based on the price of options that investors tend to buy when they are fearful of stock-market declines -- fell 4.4% after rising roughly 6% earlier in the session.

Many investors and analysts said they were paying close attention to the polls as the outcome remained too close to call. Some traders cautioned that the market's moves have come on thin volume, as many clients had already positioned themselves ahead of the election.

"I think a lot of people are just sitting on the sidelines right now, waiting," says Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital. "Any buyers in the market right now tend to have an exaggerated effect."

Trading will likely continue to be volatile until the results of the election are clear, analysts said.

"There could still be surprises today, and I don't think the market is taking anything for granted," said Quincy Krosby, marketstrategist at Prudential Financial.

The Dow Jones Industrial Average rose 121 points, or 0.7%, to 18380. The S&P 500 gained 0.6% and the Nasdaq Composite rose 0.8%.

The Stoxx Europe 600 climbed 0.3% following a muted session in Asia.

In recent sessions, risky assets such as stocks have risen as Hillary Clinton pulled ahead in polls and sold off as the race tightened. Many investors believe stocks would fare better in the sessions immediately following a victory for Mrs. Clinton, while uncertainty around the details of Donald Trump's policy proposals would send risky assets lower in the short-term aftermath of his election.

(Here are five markets to watch before and after the election.)

"We are more cautious than usual," said Luca Paolini, chief strategist at Pictet Asset Management, noting he had scaled back on stocks, particularly cyclicals, and trimmed some exposure to emerging markets and U.S. high yield ahead of the vote.

Government bonds sold off, with the yield on the 10-year U.S. Treasury note rising to 1.867%, according to Tradeweb, compared with 1.826% on Monday. Bond yields rise when prices fall.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, gained 0.1%.

Many investors said the medium and longer-term economic impacts of either a Clinton or Trump presidency remained unclear.

"The most likely outcome is there is not as much change as people are currently fearing," said William Davies, head of global equities at Columbia Threadneedle Investments, noting he removed very little risk from his portfolios ahead of the vote, with neither candidate expected to be able to push through many of their stated policy objectives if Washington is divided.

Historically, stocks have risen more often than not in the period from election day through the inauguration, according to the WSJ Market Data Group, which looked at the 30 presidential elections since the creation of the Dow Jones Industrial Average. The Dow industrials have risen an average of 4.6% when the same party remained in power, and declined an average of 4% from election day to inauguration day after a party change.

Mr. Paolini said he was prepared to consider adding to his portfolio should investors overreact to the presidential result. Longer term, the market tends to be driven by corporate profits, the economy, and monetary policy, which currently look strong in the U.S. for the next few months, he said.

While stock markets fell in recent sessions, U.S. earnings quietly beat expectations, with S&P 500 earnings on track to grow in the third quarter from the year-earlier period, according to FactSet, after five consecutive quarters of contraction.

In currency markets, the dollar was 0.6% higher against Japan's yen. On Monday, the dollar had its biggest one-day jumpagainst the haven currency since July.

The Mexican peso rose 0.9% against the dollar, extending gains from Monday. Following Mr. Trump's comments on Mexico during the campaign, should he win the election, "the peso is the number one target," said Alexis Hombrecher, founding partner at hedge-fund manager Whard Stewart.

In commodities, U.S. crude oil rose 0.6% to $45.14 a barrel, and gold slipped 0.2% to 1276.40 an ounce--reversing course from earlier in the session.

Shares in Asia mostly inched slightly higher, bolstered by the gains on Wall Street, but moves were muted ahead of the U.S. vote. Hong Kong's Hang Seng advanced 0.5%, while Australia's S&P/ASX 200 added 0.1%. Japan's Nikkei Stock Average fell less than 0.1%.

Write to Akane Otani at akane.otani@wsj.com and Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

November 08, 2016 13:01 ET (18:01 GMT)

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