(Adds oil, gold settlement prices)
- Technology stocks rally on divided Congress outlook
- Final result might not be known for days or weeks
- Dollar gains, 10-year Treasury yields plummet
- Gold retreats, oil adds to gains
- Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn
- Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
The dollar rose and world equity markets rallied on Wednesday as investors bet that a progressive "Blue Wave" Democratic agenda of heavy fiscal spending and more regulation was unlikely as the outcome of the U.S. presidential election remained unclear.
The dollar jumped more than 1% after President Donald Trump won the major battleground state of Florida early in the day, leading investors to believe Democratic Party control of Congress was not in the cards even if former vice president Joe Biden winds up winning the White House.
Biden extended his narrow lead in Michigan while maintaining a slight edge in Wisconsin, according to Edison Research. CNN and Associated Press projected Biden would win the state.
Trump, who falsely claimed victory and made unsubstantiated allegations of electoral fraud, won both of the pivotal battleground states in 2016.
Officials from each campaign insisted their candidate would prevail in the fight for 270 Electoral College votes needed to win the presidency.
But Republicans were likely to retain control of the Senate after Republican Senator Susan Collins scored a surprise re-election victory in Maine, which would effectively forestall any major change in taxes, regulation or spending.
Growth stocks pushed the major indexes on Wall Street sharply higher on the notion that a divided Congress would curb efforts to tax the big U.S. technology heavyweights.
"That decisive Blue Wave doesn't look like it's going to happen, and I think that markets are comfortable, perhaps, even if Biden wins," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.
"Investors have headed back to their security blankets," he said. "Reliable growth technology companies, 10-year Treasuries are rallying, a pivot toward safety and the U.S. dollar."
MSCI's benchmark for global equity markets .MIWD00000PUS rose 2.21% to 580.67, while the pan-European FTSEurofirst 300 index .FTEU3 closed up 2.1% at 1406.62.
On Wall Street, the Dow Jones Industrial Average .DJI rose 2.01%, the S&P 500 .SPX gained 2.70% and the Nasdaq Composite .IXIC added 3.94%.
(For the latest results and news on U.S. election, click: https://www.reuters.com/world/us-election2020) The dollar will weaken next year as a divided Congress will likely force the Federal Reserve to do more in the coming months to help the economy recover, said Edward Moya, senior market analyst at OANDA in New York.
"You're probably going to see that the dollar decline will still take place, it just won't be as accelerated as with what would have happened with a blue wave," he said.
The dollar index =USD rose 0.36%, with the euro EUR= up 0.03% to $1.1715. The Japanese yen JPY= was flat versus the greenback at 104.48 per dollar.
Long-dated U.S. Treasury yields, which had climbed to multi-month highs ahead of the election results, plummeted when the likelihood of a Democratic sweep that had been priced into the market faded.
"Yesterday afternoon the market was probably pricing in about a 70%-75% chance of a Dem sweep," said Michael de Pass, global head of U.S. Treasury trading at Citadel Securities.
"As Trump won Florida and you realized this was going to be a bit of a close race and not a landslide, the tone changed very, very quickly," de Pass said.
Yields on the benchmark 10-year U.S. Treasury US10YT=RR note fell 10.6 basis points to 0.7746%.
Stéphane Monier, chief investment officer at Lombard Odier, said a divided Congress would have "far-reaching implications for markets, mostly because it means that any kind of pandemic recovery package is still tough to approve".
TOO CLOSE TO CALL In Asia, Japan's Nikkei .N225 finished 1.7% higher, while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.4%.
Chinese blue chips .CSI300 rose 0.7%, with markets uncertain how Sino-U.S. relations would develop.
Emerging market currencies pinballed. The Mexican peso MXN= recovered from a 2% tumble taken when the sudden chance of a Trump victory sparked nerves about U.S. trade policies continuing to favour tariffs.
Norway's crown NOK= , Australia's risk-sensitive dollar AUD=D3 and Britain's pound GBP=D3 were all fighting back too, China's yuan spun to hit a 2-week high while the Russian rouble RUB= , which had been one of the hardest decliners in the election run-up, gave back overnight gains.
Gold had been buoyed by the extensive liquidity but ran into profit-taking, losing as much 1% to $1,883 an ounce.
U.S. gold futures GCv1 settled down 0.7% at $1,896.20. Oil prices rose almost 4% as it is unlikely for U.S. gas and oil incentives to be removed in a split Congress and as data showed a large decline in U.S. crude inventories.
Brent crude futures LCOc1 rose $1.52 to settle at $41.23 a barrel. U.S. crude futures CLc1 settled up $1.49 to $39.15 a barrel.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Asia stock markets https://tmsnrt.rs/2zpUAr4Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA Key emerging currencies being split by U.S. election https://tmsnrt.rs/326Toa7 Global markets since Trump's election https://tmsnrt.rs/3jNwnis World stocks market cap rise over last four years https://tmsnrt.rs/2TL19hh S&P 500 futures take a wild ride https://tmsnrt.rs/3k13Sxz
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> ((To read Reuters Markets and Finance news, click onhttps://www.reuters.com/finance/markets For Reuters Live Markets blog on European and UK stock markets, please click on: ))
