Wall Street's main indexes edged higher on Tuesday, led by energy and financial stocks, after the Bank of Japan tweaked its monetary policy in a surprise move that would allow long-term interest rates to rise more.

Major U.S. equity averages marked their fourth straight session of losses on Monday as investors shied away from riskier bets, worried that the Federal Reserve's interest rate hikes could push the U.S. economy into recession.

The BOJ on Tuesday decided to allow the 10-year bond yield to move in a wider band of 50 basis points either side of its 0% target, against expectations of no change at its policy meeting.

Energy and material indexes led gains among the major S&P sectors, up 1.6% and 0.8%, as crude and metal prices gained against a weaker dollar.

Financial stocks climbed 0.9%, with banks benefiting from a rise in Treasury yields.

"Raising the benchmark rate is something that they have not been doing, so it looks like the world is on the same page and is having a coordinated interest rate increase to try and battle inflation," said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

"We're slowly coming out of processing the Fed's hawkishness. The Fed has managed to slow the economy down so it's likely that earnings estimates (for Q4) are going to come down. By how much is the question."

The Fed struck a hawkish tone last week at its policy meeting by saying that it expects interest rates to remain higher for longer, sparking a selloff across stock markets.

Money market participants see a 61% chance the Fed will hike its key benchmark rate by 25 basis points in February to 4.50%-4.75%, keeping the terminal rate at 4.9% by May 2023.

Treasuries fell following the BOJ's shock move, with the benchmark 10-year Treasury yield rising to a three-week high of 3.68%.

Meanwhile, data showed U.S. single-family homebuilding tumbled to a 2-1/2 year low in November and permits for future construction plunged as higher mortgage rates continued to depress housing market activity.

At 10:25 a.m. ET, the Dow Jones Industrial Average was up 121.38 points, or 0.37%, at 32,878.92, the S&P 500 was up 13.09 points, or 0.34%, at 3,830.75, and the Nasdaq Composite was up 34.91 points, or 0.33%, at 10,580.94.

Tesla Inc lost 2.6% after at least three brokerages cut electric vehicle maker's target price to between $177 and $285 on growing concerns of demand weakness and risk from Elon Musk's Twitter distraction.

Wells Fargo & Co. slid 0.7% after U.S. regulators fined the lender $3.7 billion, citing widespread mismanagement of auto loans, mortgages and deposit accounts.

Volumes in markets are expected to decline this week before the Christmas and New Year holidays.

Advancing issues outnumbered decliners by a 1.54-to-1 ratio on the NYSE and 1.58-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 12 new lows, while the Nasdaq recorded 31 new highs and 228 new lows.