Dollar slips, Treasuries gain as Obama re-elected

Markets had generally expected Obama to win a close-fought election, with the general view that a victory for the Democrat would favour bonds, as he is perceived to favour low interest rates, while Republican challenger Mitt Romney was broadly seen as more business-friendly and supportive for equities.

S&P 500 Index futures were down 0.4%, having dropped as much as 1% earlier, pointing to a reversal of some of Wall Street's election day gains when trading resumes, and European stocks were seen opening flat-to-higher.

Asian shares rose amid relief that the result was clear-cut. MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.7% to a near eight-month high, after spending much of the session in and out of negative territory.

Japan's Nikkei average was flat, while financial bookmakers called London's FTSE 100, Frankfurt's DAX and Paris's CAC-40 to open as much as 0.2% higher.

"The signal we are getting from all markets … is suggesting that the outcome of the U.S. election has met market expectations and any precautionary positioning in the U.S. dollar has been unwound," said Richard Yetsenga, Head of Global Markets at ANZ Research.

The dollar slipped 0.3 percent against a basket of major currencies, retreating from a two-month high scaled on Monday. The U.S. currency fell 0.4% to 80.05 yen.

"Obama's win means the quantitative easing will continue and pressure the dollar while boosting bonds," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

Ten-year Treasuries climbed 21/32 in price to yield 1.677%, down about 7 basis points from late U.S. trade on Tuesday.

The euro rallied to a session high of $1.2876 and the Australian dollar hit a five-week high at $1.0461.

FISCAL CRISIS LOOMS

Analysts and investors will quickly shift their focus to the fiscal challenges facing Obama in his second term.

Congress will remain split between the two parties, keeping open the likelihood of messy negotiations to avert the looming "fiscal cliff" – nearly $600 billion worth of spending cuts and tax increases that risk pushing the economy into deep recession.

Any sharp downturn in the world's largest economy would raise concerns about demand for industrial metals, analysts say.

There is also the issue of a debt ceiling, which needs to be raised to avoid a government shutdown.

"Now, there will be an immediate shift to government gridlock and the fiscal cliff issue," said Michael Yoshimaki, CEO and founder at Destination Wealth Management in Walnut Creek, California.

"That will be a headwind for stocks. Still, it would be worse for stocks if we didn't know who the winner was tomorrow."

But prospects for a continuation of Federal Reserve Chairman Ben Bernanke's aggressive quantitative easing may help offset such worries to some extent as such a policy has propped up risk-favourable market sentiment. Gold has also been supported by concerns that easing could boost the prospects of inflation.

"If Obama wins, which is looking likely, the fiscal cliff is on the table, hard money is off the table, and net-net, I think the market will say, 'Well, we never were that scared about the fiscal cliff anyway, and isn't it going to be great to have Bernanke at the Fed for the foreseeable future.'," said Michael Jones, CIO of Riverfront Investment Group.

Under Obama, whoever succeeds Bernanke when his term expires in 2014 will be as committed to monetary accommodation as Bernanke is, Jones said.

Spot gold rose 0.5% to a one-week high of $1,724.21 an ounce, reversing from a 0.6% drop earlier in the day.

U.S. crude futures fell 0.5% to $88.27 a barrel and Brent dropped 0.5% to $110.51.