* Result eases uncertainty about Fed, regulation
* Stocks could struggle early, bonds rise
By Rodrigo Campos and Steven C. Johnson
NEW YORK, Nov 7 (Reuters) - U.S. investors will hit trading floors this morning with the same president and the same problems in gridlocked Washington. First up: a looming budget crisis that could send the U.S. economy reeling.
President Barack Obama beat back Republican challenger Mitt Romney to win a second term, but he will still have to contend with a Republican-controlled House of Representatives that could make forging a compromise on pressing issues like the coming "fiscal cliff" difficult.
"There will be an immediate shift to government gridlock and the fiscal cliff issue, and that will be a headwind for stocks," said Michael Yoshikami, chief executive officer and founder of Destination Wealth Management in Walnut Creek, California.
The fiscal cliff is a $600 billion package of automatic tax increases and spending cuts, scheduled to take effect at the end of 2012, that could severely strain economic growth.
Obama is expected to demand tax increases for the wealthy as part of a deal to reduce spending to tackle the nation's deficit. Many investors thought that Romney as president-elect would have had a smoother time in negotiations.
"The real challenge is for (Obama) to bridge the differences with Congress and work to get in the middle," said Jason Ader, a former Wall Street gaming analyst and a Romney supporter.
Steven Englander, Citigroup's head of G10 foreign exchange strategy, said markets could panic toward yearend if it looks as though no deal is imminent to avoid the fiscal cliff.
If that happens, investors will think twice about lending the U.S. government money at low interest rates, which would strain the economy, widen the deficit and hurt the dollar. It also raises the possibility that major credit-rating agencies will cut the U.S. debt rating.
Standard & Poor's stripped the U.S. of its pristine triple-A rating in 2011; the agencies have said they will evaluate budget negotiations and solutions and may take action next year.
Investors have had a tendency to downplay problems emanating from Washington only to find themselves surprised when lawmakers cannot get together on critical issues. The market reacted harshly to Washington gridlock after failed legislation to backstop the banks in 2008 and again during protracted talks to raise the U.S. debt ceiling in 2011.
Whitney Tilson, a hedge fund manager and one of the only managers in the $2 trillion industry publicly to endorse Obama for a second term, said he was optimistic that the two parties would compromise.
"This was a victory for moderates," he said. "I hope both parties recognize this and move toward each other - to the center - to address the pressing problems our country faces."
The end of the drawn-out election campaign puts to rest questions about regulation and monetary policy - Romney had said he would replace Federal Reserve Chairman Ben Bernanke - but some investors remained on edge about taxes and overall economic health.
Billionaire investor George Soros said late Tuesday that the re-election of Obama will open "the door for more sensible politics." Soros, a major contributor to Democratic causes, said in an email exchange with Reuters that he hoped "the Republicans in office will make better partners in the coming years."
CLARITY ON THE FED, LESS ON THE ECONOMY
Although markets came into the night expecting Obama to win, most traders and investors supported Romney, who raised more money on Wall Street than the incumbent.
Obama's win did remove uncertainty about the future of Fed policy. Romney had said he would replace Bernanke, whose dovish monetary policy has helped propel gains in both U.S. bond and stock prices in recent years.
The benchmark S&P 500 has rallied 67 percent since Obama took office - one of the most impressive runs ever for stocks under a single president.
Benchmark bond yields hit record lows despite a downgrade of the U.S. credit rating last year. Cumulative returns for maturities on all U.S. Treasuries are at 14 percent since Obama took office, according to Barclays.
The Fed's easy-money policy has pushed down the value of the dollar, though, and some worry more dollar weakness may be in store, particularly if investors see signs of rising inflation.
"The market rewards this certainty by bidding up gold and selling the dollar against all major currencies," said Axel Merk, president of Merk Investments in Palo Alto, California.
Under a second Obama presidency, Wall Street will have to forgo trying to repeal Dodd-Frank financial reforms and instead continue to use personal relationships in Washington to keep the law from harming firms, said Karen Shaw Petrou of Federal Financial Analytics, a Washington-based research firm.
Wall Street has bristled at the reforms, which include stricter capital requirements for banks, and the Volcker Rule, which is intended to stop banks from making bets in the financial markets with insured deposits.
But some welcomed the changes.
"I don't think any reasonable observer would want to go back to the risk that we had in the system before the financial crisis," said Evercore CEO Ralph Schlosstein.
BEFORE YOU GO
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