* Republicans projected to win House, gain in Senate
* Fed's Wednesday decision eyed, expectations high
* Futures: S&P up 0.1 pct, Dow up 0.1 pct and Nasdaq flat
* For a TAKE-A-LOOK on U.S. midterm elections []
(Recasts, updates with election projections, changes dateline)
By Harpreet Bhal and Emelia Sithole-Matarise
LONDON, Nov 3 (Reuters) - U.S. stock index futures signaled
a firmer opening for Wall Street on Wednesday and Treasury
futures rose in anticipation that the Federal Reserve will
announce more asset purchases to stimulate the economy.
Market reaction to Republicans' victory in the midterm
elections was relatively muted as investors have largely priced
in an outcome that is seen as a net positive for business, with
the focus firmly on the Fed meeting.
Republicans seized control of the U.S. House of
Representatives and strengthened their ranks in the Senate in
midterm elections after voters punished Democrats over high
unemployment and a sluggish economic recovery. []
Television networks projected Republicans would pick up at
least 60 House seats, far more than the 39 needed for a majority
that would elevate conservative John Boehner to House speaker,
put Republicans in charge of House committees and slam the
brakes on President Barack Obama's agenda.
A divided Congress is seen as supportive for stocks. Critics
for example of the new healthcare law, which put pressure on
related stocks earlier this year, hope Republicans can spearhead
attempts to repeal or not fund parts of the reform.
But the S&P 500 index has gained almost 14 percent since
September, and analysts said the result was largely priced in
and may raise some doubts over fiscal spending to support the
recovery, leaving stocks ripe for some profit taking.
"It's going to make life a lot difficult for the president.
We have a situation in which the question of how to manage
fiscal policy is very much on the agenda," said Peter Dixon,
economist at Commerzbank in London.
"The Republicans may try and push for preventing the (former
President George W.) Bush's tax cut from collapsing, which may
give the economy a lift in 2011 ... It's a bit more positive for
stocks in the near term."
He said that in the long term, an assertive Republican party
could also complicate trade and economic relations with China.
Analysts said the more pressing matter for the market
remained what the Fed says about quantitative easing at the
conclusion of its two-day meeting later in the day.
[]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic on the election results:
http://link.reuters.com/wav53q
For a special report on QE:
http://link.reuters.com/pyb23q
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
FED IN SPOTLIGHT
The Fed is expected to announce after 1815 GMT a program of
asset purchases of at least $500 billion via quantitative easing
-- in effect printing money to buy bonds and lower borrowing
costs.
Futures for S&P 500 <SPc1> and Dow Jones <DJc1> were both up
0.1 percent, while Nasdaq futures <NDc1> were flat.
U.S. Treasuries extended gains in European trading as market
participants anticipated the Fed resuming asset purchases after
its policy meeting. The T-note future <TYv1> rose by as much as
8/32 on the day to a one-week high of 126-26/32.
"People are positioning going into the FOMC this evening.
You are seeing buying in the belly of the curve," a trader said.
"What we saw in Europe yesterday was a large flattening bias
and that flattened out the U.S. curve as well. We are just
having a bit more follow-through."
Stocks closed higher on Tuesday on the expectations the
midterm election and central bank decision would create a more
business-friendly environment. []
The Dow Jones industrial average <> rose 0.6 percent,
the Standard & Poor's 500 Index <.SPX> gained 0.8 percent and
the Nasdaq Composite Index <> firmed 1.1 percent.
The U.S. dollar eased 0.1 percent against a basket of
currencies <.DXY> on Wednesday. []
The dollar and the S&P 500 have established a close inverse
correlation in recent weeks. Their 30-day correlation stands at
-0.84, with -1 being a perfect inverse correlation.
The CBOE Volatility Index <.VIX>, a favourite barometer of
investors' fear, fell 1.2 percent after six sessions of gains.
"We expect (volatilites) to remain firm in anticipation of
today's Fed statement and expected QE2 announcement," said Nick
Tranter, head of derivatives at Execution Noble in London.
A raft of data due later in the session is expected to
provide a further indication of the health of the economy, with
the ADP Employment report for October at 1215 GMT, and durable
goods orders and the ISM's non-manufacturing PMI for October
both due at 1400 GMT.
(Additional reporting by Leah Schnurr, Rodrigo Campos and Ryan
Vlastelica; editing by Patrick Graham)
