* Democrats win control of House, Republicans keep Senate
* Tech, health stocks gain as regulation fears ebb
* Bank stocks flat as Treasury yields slip
* Indexes up: Dow 1.35 pct, S&P 1.5 pct, Nasdaq 2.06 pct (Updates to early afternoon)
By Sruthi Shankar
Nov 7 (Reuters) - U.S. stocks surged on Wednesday as investors piled into technology and healthcare sectors after midterm elections led to a divided Congress and fueled bets that tighter regulations in these sectors would be harder to push through.
Democrats won control of the House of Representatives on Tuesday, while President Donald Trump's Republicans expanded their majority in the Senate as expected, pointing to a political gridlock in Washington.
The S&P technology sector rose 2.4 percent, while the healthcare group gained 2.8 percent as fears of stricter regulations curbing their growth eased.
Health insurers Humana Inc, Anthem Inc and UnitedHealth Group Inc jumped to record highs as voters in three states approved expanding Medicaid programs for low-income people.
Large technology and internet names, including Facebook Inc , Netflix Inc, Amazon Inc and Alphabet Inc, also gained.
"The uncertainty around the midterms is over, so the markets are rallying...we're not expecting any major policy implications over the next two years," said Massud Ghaussy, senior analyst at Nasdaq IR Intelligence in New York.
"Certain sectors will benefit or stand to lose based on compromise reached between the House and the White House, but the overall market impact will be limited."
While a divided Congress will hamper Trump's political and economic agenda, few expect a reversal of corporate tax cuts and deregulation measures that have already been enacted, allowing investors to buy back into a market recovering from its worst month in seven years in October.
At 12:39 p.m. ET the Dow Jones Industrial Average was up 345.06 points, or 1.35 percent, at 25,980.07, the S&P 500 was up 41.25 points, or 1.50 percent, at 2,796.70 and the Nasdaq Composite was up 152.03 points, or 2.06 percent, at 7,528.00.
Following a steep selloff in October, the S&P 500 remains down roughly 5 percent from its record high, as investors fear that rising interest rates and trade wars could take a toll on stocks.
The Federal Reserve starts its two-day monetary policy meeting on Wednesday, but is not expected to raise rates until December. Financial stocks gained 0.3 percent and bank stocks were trading flat as Treasury yields slipped.
DaVita Inc jumped 10.8 percent after California rejected a proposal to limit the rates dialysis clinics can charge commercially insured patients.
Anadarko Petroleum Corp surged 5.6 percent and Noble Energy Inc jumped 5.2 percent after Colorado voters a rejected a tougher rule on oil and gas drilling, which spurred shares of companies operating in the state.
Among the laggards were luxury handbag maker Michael Kors Holding Ltd and beauty products maker Coty Inc , which tumbled 14.3 percent and 22.1 percent, respectively, after both missed quarterly revenue estimates.
Advancing issues outnumbered decliners by a 2.74-to-1 ratio on the NYSE and by a 1.79-to-1 ratio on the Nasdaq.
The S&P index recorded 32 new 52-week highs and three new lows, while the Nasdaq recorded 56 new highs and 54 new lows.
Reporting by Sruthi Shankar in Bengaluru, additional reporting by Medha Singh; Editing by Arun Koyyur