Posted By: Brad Martin

By TIM PARADIS, AP Business WriterWed Nov 8, 1:24 PM ET

NEW YORK - Stocks fell moderately Wednesday after Democrats scored a huge victory in congressional elections, raising questions about how sympathetic the federal government will be toward business. Further news of Republican setbacks Wednesday afternoon didn't appear to startle Wall Street.
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Investors had largely expected Democrats to win control of the House of Representatives for the first time in a dozen years, but a still undecided Senate race in Virginia that left the leadership of that house unclear created the type of uncertainty investors dislike. Democrats pulled off a narrow victory in the Senate race in Montana, but stocks moved little on the new or on the surprise resignation of Defense Secretary Donald H. Rumsfeld.

"Investors are looking for a more active Washington," said Subodh Kumar, chief investment strategist for CIBC World Markets, citing a relatively stable dollar. He expects sectors like health care and defense will face pressure from Democrats interested in reining in government spending.

In early afternoon trading, the Dow Jones industrial average was down 41.22, or 0.34 percent, at 12,155.55.

Broader stock indicators also fell. The Standard & Poor's 500 index was down 3.39, or 0.25 percent, at 1,379.45, and the Nasdaq composite index fell 2.48, or 0.10 percent, to 2,373.40.

Bonds rose, with the yield on the benchmark 10-year Treasury falling to 4.65 percent from 4.66 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude rose 77 cents to $59.70 on the New York Mercantile Exchange after the Energy Department reported that domestic crude inventories rose last week but that gasoline stores fell.

Beyond the ramifications of the midterm elections, some pullback in stocks was to be expected after back-to-back sharp gains for the major indexes this week.

Stocks in sectors as disparate as housing and stem-cell research showed movement Wednesday as investors tried to determine how government might weigh in with regulations or business-friendly measures.

Kumar expects the changes in Washington to increase pressures for restructuring and mergers in the health care sector. In the defense space, he sees bigger, more diversified names like Boeing Co. holding up better than small, specialized players. He expects Democrats will look to trim some defense spending to pare the budget deficit. Boeing was down 31 cents at $84.24.

"Pullbacks in drugs would be considered an opportunity and I would expect the large-cap defense contractors to remain very stable," Kumar said. "The diverse defense contractors are better positioned than the more esoteric, specialized ones which are more likely to see their contracts trimmed."

Defense stocks were little moved following the news of the Defense Secretary's resignation. Northrop Grumman Corp. was down 1.11 at $65.29, while Lockheed Martin Corp. was down $1.81, or 2.1 percent, at $85.68.

Companies in the stem-cell sector showed gains after voters in Missouri narrowly approved a referendum guaranteeing federally approved stem-cell research and treatment will be available in the state. StemCells Inc. rose 31 cents, or 10.1 percent, to $3.38, while Geron Corp. rose 24 cents, or 2.9 percent, to $8.62. Aastrom Biosciences Inc. was up 12 cents, or 7.9 percent, to $1.61.

Also, companies in the government-sponsored mortgage business made advances on the notion that Democrats would push plans to broaden access to housing. Fannie Mae was up $1.85, or 3.1 percent, at $61.75, while Freddie Mac was up $1.51, or 2.2 percent, at $71.37.

In other corporate news, Cablevision Systems Corp. was off 11 cents at $27.82 after the cable TV operator and owner of properties such as Madison Square Garden, reported a wider-than-expected third-quarter loss.

Sirius Satellite Radio Inc. was down 2 cents at $4.11 after posting a narrower-than-expected loss as revenue more than doubled.

Federated Department Stores Inc., parent of Macy's and Bloomingdale's, reported that it swung to a third-quarter loss from a profit due to costs related to its acquisition of May Department Stores Co. last year; the old May stores were recently converted to Macy's branches. Federated was down 46 cents at $39.88.

Advancing issues outnumbered decliners by about 8 to 7 on the New York Stock Exchange, where volume came to 909.9 million shares.

The Russell 2000 index of smaller companies was up 1.88, or 0.25 percent, at 766.27.

Overseas, Japan's Nikkei stock average closed down 1.08 percent. Britain's FTSE 100 closed down 0.08 percent, Germany's DAX index was down 0.20 percent, and France's CAC-40 was down 0.01 percent.

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