* U.S., Europe shares gain as vote outcome meets expectations
* Trade worries likely to remain despite Democrats’ win
* Dollar tumbles, U.S. yields fall on stimulus doubts
* Interactive chart on U.S. midterms tmsnrt.rs/2D6XH9t (Adds quote, updates Wall Street movers and throughout)
By Hilary Russ
NEW YORK, Nov 7 (Reuters) - World stock markets climbed on Wednesday after the U.S. midterm election divided control of Congress, but the vote’s outcome, which cast doubt on further U.S. tax cuts, hit the dollar and sent Treasury yields lower.
While gridlock in Washington could hamper President Donald Trump’s political and economic agenda, few expect a reversal of tax cuts and financial deregulation measures that have already been enacted.
That view helped all three Wall Street equity indices extend gains, and investors piled into growth sectors such as technology and healthcare.
The Dow Jones Industrial Average rose 262.58 points, or 1.02 percent, to 25,897.59, the S&P 500 gained 33.77 points, or 1.23 percent, to 2,789.22 and the Nasdaq Composite added 124.50 points, or 1.69 percent, to 7,500.46.
The Democrats looked headed to gain more than 30 seats in the House of Representatives, well beyond the 23 they needed to claim their first majority in eight years. With Trump’s Republican party holding on to its Senate majority, the results from Tuesday’s election were in line with expectations.
“The good news in a way for markets is that there was an uncertainty that’s now been removed. We know where we stand for the next two years, and investors will focus back on the fundamentals, which are (company) earnings growth and the economy,” said Guy Miller, chief market strategist at Zurich Insurance Group.
Still, a split Congress could hamper Trump’s push for a further round of tax cuts and deregulation, measures that have turbocharged the U.S. economy, stock markets and the dollar.
MSCI’s gauge of stocks across the globe gained 1.02 percent, while the pan-European STOXX 600 index rose 1.06 percent.
Riskier European bonds such as those from Italy were in demand, with yields falling 6-9 basis points.
The U.S. Federal Reserve starts its two-day monetary policy meeting on Wednesday, where it is expected to keep interest rates unchanged. A rate hike in December is largely priced in.
“The policy path implied by this outcome shifts the narrative away from rising rates at least temporarily,” Morgan Stanley’s Michael Zezas wrote in a client note.
That view pushed the dollar lower against a basket of currencies. The dollar index fell 0.42 percent, with the euro up 0.35 percent to $1.1466.
U.S. Treasury yields fell, with investors trying to figure out the impact of the election on government spending and borrowing in the coming year.
“Democrats winning the House is likely to mean slightly less fiscal stimulus going forward. The bond market may take that well because the Federal Reserve will have less work to do,” said Richard Buxton, head of UK equities at Merian Global Investors.
Benchmark 10-year notes last rose 7/32 in price to yield 3.1875 percent, from 3.215 percent late on Tuesday.
Attention will focus on Trump’s hard line on trade tariffs, which he can impose without Congressional approval. That keeps alive worries about a trade war between China and the United States.
Chinese shares closed 0.7 percent lower, while Hong Kong markets ended just above flat.
The dollar’s weakness lifted other currencies. The Japanese yen strengthened 0.07 percent versus the greenback at 113.37 per dollar, while sterling was last at $1.3134, up 0.28 percent on the day.
Oil prices reversed earlier declines after a report that Russia and Saudi Arabia were discussing output cuts in 2019 .
U.S. crude fell 1.32 percent to $61.39 per barrel and Brent was last at $71.47, down 0.92 percent on the day.
Additional reporting by Sruthi Shankar and Noel Randewich in San Fransisco; Richard Leong in New York; Sujata Rao in London; Editing by Bernadette Baum