By TIM PARADIS

The Associated Press

NEW YORK -- Wall Street rose for a third straight session Wednesday, with the Dow Jones industrials reaching another record close as investors grew more confident that a huge victory by Democrats in congressional elections would result in gridlock and keep lawmakers out of the way of business interests.

The market had largely expected Democrats to gain control of the House of Representatives, but an undecided Senate race in Virginia had, during early trading, unnerved investors who dislike such uncertainty. Stocks showed gains following the announcement that Defense Secretary Donald H. Rumsfeld will resign.

Some investors saw "headline risk" from Wednesday's news but expect that Wall Street will quickly get back to business.

"I would think over the next several weeks that investors should return their focus to the likelihood for interest rate moves in the decelerating economic climate, the moderating earnings growth and the weakening housing market," said Elizabeth Weymouth, global investment specialist at JPMorgan Private Bank.

The Dow rose 19.77 points, or 0.16 percent, to 12,176.54. The blue chips closed above the record of 12,167.02 set Oct. 26.

The gains this week continue a run-up seen in October that was interrupted last week when a string of poor economic data sent stocks lower. Already this week the major indexes are up at least 1.5 percent and have offset last week's losses. While Wall Street wants an economic slowdown to ease inflation and persuade the Federal Reserve to lower short-term interest rates, investors grew concerned last week that perhaps the economy was cooling too quickly and would fall into a recession. A series of private equity buyout deals lifted spirits Monday as have some better-than-expected profit reports.

Looking at the ramifications of the election, Weymouth said that while gridlock could again become a fixture in Washington, she said investors will likely still consider whether Democrats might make an effort to somehow cap prescription drug prices, increase the federal minimum wage or raise the 15 percent tax on some dividend gains.

Subodh Kumar, chief investment strategist for CIBC World Markets, contends that while energy stocks, for example, might have been expected to see pressure amid concerns about windfall profit taxes, the overall mood on Wall Street is positive.

"One of the interesting things to look at it is that bond yields have been relatively stable and the dollar has been moving up. I think one can look at that as anticipation that reduction of budget deficits will be a higher priorities in Washington," he said.

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

Defense stocks moved moderately lower following the news of the Defense Secretary's resignation. Northrop Grumman Corp. was down $1.42, or 2.1 percent, at $64.98, while Lockheed Martin Corp. fell $1.04 to $86.45.

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 32 cents, or 10.4 percent, to $3.39, while Geron Corp. rose 28 cents, or 3.3 percent, to $8.66. Aastrom Biosciences Inc. was up 10 cents, or 6.7 percent, at $1.59.

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 $1.75, or 2.9 percent, at $61.65, while Freddie Mac was up $1.37, or 2 percent, at $71.23.

In other corporate news, Merck & Co. fell $1.56, or 3.4 percent, to $44.34 after the pharmaceutical company said liabilities from tax disputes in the U.S. and Canada could total $5.58 billion.

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 47 cents at $39.87.

Advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange, where consolidated volume came to 2.88 billion shares, compared with 2.69 billion traded Tuesday.

The Russell 2000 index of smaller companies was up 5.45, or 0.71 percent, at 769.84.

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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