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Wall Street gains as investors bet on banks

February 27, 2009|Tom Petruno

Healthcare stocks were hammered Thursday, leading the overall stock market lower, after President Obama's budget proposals confirmed some investors' worst fears about the administration's plans to squeeze the industry.

The sell-off undermined what had been one of the few pillars of support, relatively speaking, for Wall Street this year.

Managed-care companies took the biggest hit: The HMO index of 11 major healthcare providers plunged 10%, bringing its decline so far this week to 20%.

UnitedHealth Group slumped 13% and is down 28% this week. Humana plunged 19%, giving it a 42% decline so far this week. Woodland Hills-based Health Net slid 9.4% and is down 20% for the week.

Obama wants to force healthcare providers to make competitive bids to provide so-called Medicare Advantage plans, which offer bundled benefits and subsidized care for nearly 11 million Medicare recipients. The government estimates that the insurers that operate the plans are paid on average 14% more than it costs Medicare to provide benefits directly.

Shares of pharmaceutical companies also slid. The budget proposal would reduce the amount they are paid for drugs used by people on Medicaid.

Eli Lilly lost 4.7%, Pfizer dropped 2.9%, and Thousand Oaks-based Amgen sank 9.4%. Amgen could be hurt in the long run by Obama's plan to open the door for generic-drug firms to make their own versions of biotech drugs.

The S&P 500 healthcare index fell 5.1% on Thursday as 52 of its 54 component stocks declined.

Until this week, the sector had been helping to cushion the broader market's losses this year. Through last Friday the healthcare index was off just 2.9% year to date, while the S&P 500 index overall was down 15%.

With this week's losses, the healthcare sector is off 10% for the year.

The Dow Jones industrial average fell 88.81 points, or 1.2%, to 7,182.08. The Standard & Poor's 500 index dropped 12.07 points, or 1.6%, to 752.83, and the Nasdaq composite index fell 33.96 points, or 2.4%, to 1,391.47.

The Russell 2,000 index of smaller companies fell 2.1%.

Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange.

Bank shares initially pulled much of the market higher after the Obama administration indicated in its fiscal 2010 budget that it might need to request an additional $750 billion in bank-bailout funds beyond the $700 billion already approved by Congress. But the market pulled back after officials said they didn't know whether they would actually request the extra money.

An index of financial stocks in the S&P 500 finished with a 2% gain after being up as much as 6.9%.

Oil futures rose $2.72 to $45.22 in New York trading.

Gold futures fell $23.90 to $941.80 an ounce.

The Treasury market was mixed, as was the dollar against other major currencies.

In Europe, key stock indexes rose 1.7% in Britain, 2.5% in Germany and 1.8% in France.

--

tom.petruno@latimes.com

Times wire services were used in compiling this report.

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