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U.S. stocks closed higher on Tuesday in a modest reversal of a four-day sell-off, but the greenback lost altitude and bond yields jumped in the wake of an unexpected policy pivot from the Bank of Japan (BOJ).

All three major U.S. equity indexes rebounded from an early-session dip, while the rising yen sent the dollar lower, and 10-year U.S. Treasury yields touched their highest level this month in reaction to the Japanese central bank's surprise policy change to allow long-term interest rates to rise.

"Japan has been consistently consistent for many years," said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. "The slightest tweak in their policy has investors scratching their heads as to how to interpret that going forward."

As of Monday's close, the benchmark S&P 500 had fallen 5% from last Tuesday.

Indeed, the S&P 500, the Dow and the Nasdaq are all on track to notch their biggest annual percentage drops since 2008, the darkest year of the global financial crisis, largely due to persistent inflation and the Fed's increasingly hawkish battle against it.

"A calibration is happening with regards to the Fed's language last week, and the market is digesting it," said Keator, who added that "there's a lot of work (the Fed has) done this year that will take time to take root."

"It's better to pause than to pivot and cut, because the Fed's been vocal about the fact that it's not their intention to reverse course anytime soon," Keator said.

The Dow Jones Industrial Average rose 92.2 points, or 0.28%, to 32,849.74, the S&P 500 gained 3.96 points, or 0.10%, to 3,821.62 and the Nasdaq Composite added 1.08 points, or 0.01%, to 10,547.11.

European stocks were pulled lower by interest rate-sensitive tech and industrial stocks following the BOJ's announcement that it would allow long-term interest rates to rise, joining its global counterparts in their inflation-taming policy tightening.

The pan-European STOXX 600 index lost 0.40% and MSCI's gauge of stocks across the globe gained 0.16%.

Emerging market stocks lost 0.61%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.08% lower, while Japan's Nikkei lost 2.46%.

U.S. Treasury yields jumped after Japan's central bank broadened its yield curve control, which prompted a global bond sell-off.

Benchmark 10-year notes last fell 30/32 in price to yield 3.6918%, from 3.583% late on Monday.

The 30-year bond last fell 74/32 in price to yield 3.7466%, from 3.623% late on Monday.

Japan's surprise policy review sent the yen to a four-month peak against the greenback, and the dollar fell sharply against a basket of currencies.

The dollar index fell 0.69%, with the euro up 0.17% to $1.0623.

The Japanese yen strengthened 3.94% versus the greenback at 131.71 per dollar, while the British pound was last trading at $1.2178, up 0.26% on the day.

Crude prices forfeited earlier gains on worries that a major U.S. winter storm could persudade millions of Americans to curb their travel plans.

U.S. crude settled up 1.2% at $76.09 per barrel, while Brent rose 0.24% to settle at $79.99 on the day.

Gold breached the $1,800 level on the back of the falling dollar.

Spot gold added 1.7% to $1,817.55 an ounce.