NEW YORK/LONDON (Reuters) -Donald Trump's victory in the U.S. presidential election unleashed a massive rally in the dollar, drove stocks to record highs and punished bond prices as expectations of tax cuts and tariffs on imports drove optimism about economic growth while fueling worries about inflation.

U.S. equity indexes soared, with the benchmark S&P 500 up 2.51% to a record high and huge gains in areas such as small-cap stocks and banks that are poised to benefit from Trump's expected lighter regulatory touch.

The dollar hit its highest level in over four months. Bitcoin hit record highs and Treasuries were battered.

Trump's pledges to raise tariffs, cut taxes and slash regulations encouraged investors to dive into a range of assets that looked likely to benefit from such policies.

Markets that could suffer under tougher tariffs bore the brunt of the sell-off. The Mexican peso slumped to its lowest level in over two years while the euro was set for its largest daily drop since 2020.

"Everywhere you look, there's the thumb prints of these election results for markets," said Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute.

Bolstering confidence in so-called "Trump trades," Republicans won control of the U.S. Senate. Investors were still awaiting results in the House of Representatives to see if Republicans could pull off a "Red Sweep" that would give them control of both houses of Congress, further easing the path for Trump's agenda.

The election could have far-reaching implications for tax and trade policy, as well as U.S. institutions. The outcome affects assets globally and could determine the outlook for U.S. debt, the longer-term strength of the dollar and a host of industries that make up the backbone of corporate America.

INTEREST RATES SEEN HIGHER

Investors sold U.S. Treasuries, partly on the expectation that higher tariffs would inevitably filter through to consumer prices, but also because Trump's promises on spending could boost government debt levels. The benchmark 10-year Treasury yield rose as high as 4.48%, its highest level in over four months but retreated slightly.

"If he's able to fully implement his agenda, it means bigger deficits, bigger tax cuts, and also, because of tariffs, higher inflation," said David Kelly, chief global strategist at JPMorgan Asset Management. "The higher inflation and the bigger deficits should push up long-term interest rates."

In stocks, shares of Tesla, headed by Trump supporter Elon Musk, jumped 14.75%. The small-cap Russell 2000 rose nearly 6%, while the S&P 500 banks index jumped 10.68%.

Bitcoin surged to a record high, betting on a softer line on cryptocurrency regulation.

"Trump's win likely means some deregulation, including rolling back banking regulations, though big tech may remain a bipartisan antitrust focus," analysts at the BlackRock Investment Institute said in a note.

Meanwhile, thousands who bet on the U.S. election are looking forward to a potential payout of about $450 million from online gambling sites after Trump's victory.

The results meant markets gained clarity about the presidency faster than in 2020, when Joe Biden was announced the victory some four days after election night.

"This is an economy that's in good shape as we go into the next Congress and the next administration, and the stock market is reflecting that with the removal of this uncertainty overhang," said Kurt Reiman, head of fixed income Americas and lead of the ElectionWatch at UBS Wealth Management.

Market attention was turning to the Federal Reserve's monetary policy decision on Thursday, with Trump's victory set to potentially put the central bank on a slower and shallower path for interest rate cuts, should the Republican's plans juice the economy.

"We now expect just one Fed cut in 2025, with policy on hold until the realized inflation shock from tariffs has passed," economists at Nomura said in a note.

(Additional reporting by Lewis Krauskopf, Suzanne McGee, Michelle Conlin, Nupur Anand, Chibuike Oguh, Noel Randewich, Saqib Ahmed, Saeed Azhar, Caroline Valetkevitch, Tom Westbrook, Kevin Buckland, Megan Davies, Douglas Gillison, Carolina Mandl, Lananh Nguyen, Danilo Masoni, Sinead Cruise and Alex Cornwell; Writing by Michelle Price and Amanda Cooper; Graphics by Pasit Kongkunakornkul, Vineet Sachdev and Sumanta Sen; Editing by Paritosh Bansal, Sam Holmes, Peter Graff, Sharon Singleton, David Gregorio and Sandra Maler)