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 / Updated  / Source: Reuters
By Reuters

Stocks edged up on Tuesday as world markets braced for the outcome of one of the most contentious U.S. presidential elections in history, with trade largely driven by cautious expectations of a win for Democrat Hillary Clinton.

The sharp swings of recent days across all asset classes gave way to a more subdued tone, with investors reluctant to make too many big bets as Americans prepared to vote.

The dollar and bond yields slipped, while gold inched up.

Donald Trump and Hillary ClintonJUSTIN LANE / EPA, file

"Markets are certainly going into today in a much better mood now after that FBI news on Sunday night saw risk assets claw their way back following a near two-week selloff," said Jim Reid, market analyst at Deutsche Bank.

World stocks had their best day in four months on Monday and Wall Street its best since March after the U.S. Federal Bureau of Investigation said it stood by findings that Clinton was not guilty of criminal wrongdoing in her use of a private email server.

Europe's index of leading 300 shares, which posted its biggest gain in two months on Monday, extended that on Tuesday, rising 0.3 percent. Britain's FTSE 100 and Germany's DAX were both up 0.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6 percent and Japan's Nikkei 225 was flat, meaning MSCI's global index of world shares was up 0.2 percent.

U.S. stock futures pointed to a flat open on the S&P 500, consolidating Monday's rally which snapped a nine-day losing streak, the longest since 1980.

China's CSI 300 index index added 0.4 percent, with relief over improving prospects of a Clinton win offsetting bigger-than-expected declines in both imports and exports and a smaller-than-forecast trade balance in October.

Clinton is seen by investors as offering greater certainty and stability, and, until stumbling last week after FBI Director James Comey said the agency was reviewing newly discovered emails, had been seen as the clear favorite.

While polls last week showed Republican candidate Donald Trump closing in on Clinton's lead, at least five major polls on Monday showed her still ahead.

But investors remained wary, noting Britain's shock vote in June to leave the European Union had wrong footed bookmakers and most pollsters.

"A Trump victory would be a clear risk-off event that would trigger significant reactions and equity markets would take a sharp hit, at least in the short term," said Andreas Johnson, economist at Swedish bank SEB.

"However, the tightening of the polls indicate that the risk of a very close result is substantial."

In currency markets the dollar, which had its best day in a month on Monday, edged slightly lower. The dollar index, a measure of its value against a basket of currencies, fell 0.2 percent as the euro rose 0.2 percent to $1.1060.

Having recorded its biggest one-day increase against the yen in almost four months on Monday, the dollar was flat against the Japanese currency at 104.40 yen on Tuesday.

It was flat at 18.5855 versus the Mexican peso, which has ebbed and flowed in recent weeks in tandem with the perceived chances of a Trump victory.

The currency is seen as a proxy for bets on the election because Mexico is considered most vulnerable to Trump's trade policies as 80 percent of its exports go to the United States.

Most bond yields retreated on Tuesday after rising across the board on Monday. The benchmark 10-year U.S. Treasury yield fell one basis point to 1.815 percent.

Crude oil futures were higher, with U.S. crude up 0.7 percent at $45.20 a barrel and global benchmark Brent up 1 percent at $46.62, both extending Monday's gains of more than 1 percent.

But safety plays were also in favour as gold climbed 0.3 percent to $1,285 an ounce, erasing some of its 1.7 percent loss from the previous session.