NEW YORK (Bloomberg) - The midterm elections that ended Democrats' control of the US House of Representatives are likely to sustain the bull market that began in March 2009 at the depths of the financial crisis.

US stocks will continue their ascent because victorious Republicans probably will block Democrats' plans to raise taxes and impose stricter regulations on businesses, according to money managers interviewed before the vote.

"The near-term issue of importance to investors is the Bush-era tax cuts," said Robert Doll, chief equity strategist at New York-based BlackRock Inc., the world's largest fund manager with $3.45 trillion in client assets.

The new Republican majority in the House may force President Barack Obama to back off efforts to let tax cuts enacted under President George W. Bush expire and to raise rates on dividends and capital gains. That would boost optimism among investors and company executives, driving improvements in financial markets and the economy, according to Barclays Capital in New York. "From a macroeconomic perspective, we can't recall a time when we viewed the election results to be as critical to business confidence and economic activity," Barclays analysts led by Barry Knapp wrote in an October 22 report.

Investors also will be encouraged that the financial, energy and health-care industries won't be saddled with tighter regulations that could hurt profits, according to Doll and Timothy Flannery of Copia Capital LLC.

Also last week the Federal Reserve said it planned to expand asset purchases by $600 billion by the end of June.

The S&P 500 surged 13 percent in September and October, the biggest rally for the two months since 1998, as the Fed signalled it would buy debt securities to lower long-term interest rates and accelerate the recovery.

The gains came even with sales of new homes near record lows and the unemployment rate at 9.5 percent or higher for the longest stretch since records began in 1948.

The S&P 500 index has gained 76 percent since bottoming out on March 9, 2009. The Republican victory in the House is priced into the market, and further gains are likely to be curbed by headwinds such as high unemployment and a large overhang of debt, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., the Newport Beach, California-based fund manager with $1.24 trillion in client assets.

While the outgoing Congress plans to debate whether to extend Bush-era tax cuts, set to expire December 31, the Republican victory will influence the outcome. Senator Amy Klobuchar, Democrat of Minnesota, told CBS's "Face the Nation" on October 31 that Democrats may compromise by extending the tax cuts for a year or two, or limiting the expiration to households earning more than $1 million.

The administration proposed to end the tax cuts, enacted in 2001 and 2003, for couples earning more than $250,000. Republicans said that any tax increase will stifle entrepreneurship and job creation.

The Democrats are also pushing to increase the 15 percent tax rate on dividends and most capital gains. "If they end up extending the tax cuts, we move the uncertainty from January 1 of 2011 to January 1 of 2012, and that will at least have some short-term benefit," said BlackRock's Doll.

Leaving the capital-gains rate unchanged may spur companies with cash to raise their dividends rather than initiate stock buybacks, making dividend-paying stocks a good bet for investors, Doll said.

Duncan W. Richardson, chief equity investment officer at Boston-based Eaton Vance Corp., said a continuation of the Bush tax cuts would only be a short-term positive.

"As an investor you have to recognize that's only going to be a one-year fix," Richardson said. You have to be prepared for higher taxes regardless of how elections turn out."

The US's rising debt and looming deficits in federal programmes like Social Security and Medicare make higher taxes inevitable, he said. "In a generational sense, taxes may be as low as they are going to get," said Richardson, whose company oversees $180.7 billion.

It's unlikely Republicans will pursue a Democratic plan to raise taxes on investment profits, known as carried interest, at private-equity and hedge funds.

Managers of the funds can treat carried income from long-term investments at the lower capital-gains rate of 15 percent rather than as ordinary income.