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Weak health care stocks drag US market lower

HEALTH insurers and drug companies, some of the better performers on Wall Street lately, led the market lower yesterday after the White House proposed cutting payments to private insurance plans.

The Obama administration's US$3.55 trillion budget plan for 2010 includes cuts to Medicare and Medicaid. Private insurance plans serving Medicare seniors would take the biggest hit, but hospitals, drug manufacturers and home health agencies also face cuts.

As investors became aware of the impact that the budget, if enacted, could have on the companies, they turned against what had been one of the strongest industries in the stock market recently. Market watchers had been looking to health care to help lead the market's recovery along with other recession-resistant industries like consumer staples.

Banking shares initially pulled much of the market higher as investors welcomed plans from Washington for additional bailout measures that could provide up to US$750 billion in support to the struggling banking system. But the Obama administration said the money was for a contingency fund and that it didn't plan to immediately ask Congress to add to the government's existing US$700 billion rescue program. Many financial stocks managed to close the day higher.

The day's gyrations showed how fractious the market is, with investors ready to turn on stocks at the first whiff of bad news. Wall Street also extended a back-and-forth pattern that began earlier in the week. Market watchers say the sudden shifts reflect indecision among investors rather than big changes in their sentiment over the economy.

"I don't think anybody is comfortable if you're in the market right now. You still have quite a bit of fear driving equity prices," said Bill Knapp, investment strategist for MainStay Investments, a division of New York Life Investment Management.

The major stock indexes gave up early leads to close lower.

The Dow Jones industrial average fell 88.81, or 1.2 percent, to 7,182.08, pulled down by stocks including drug maker Merck & Co., down US$1.87, or 6.7 percent, at US$26.04 and health products company Johnson & Johnson, off US$1.52, or 2.8 percent, at US$52.44.

The Standard & Poor's 500 index fell 12.07, or 1.6 percent, to 752.83 and the Nasdaq composite index fell 33.96, or 2.4 percent, to 1,391.47.

The Russell 2000 index of smaller companies fell 8.49, or 2.1 percent, to 392.95.

Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where consolidated volume came to 6.48 billion shares, down from Wednesday's 7.29 billion.

The early pop in hard-hit financial stocks was typical of the reaction of those shares in recent weeks after other financial rescue plans were announced, said Rob Lutts, chief investment officer at Cabot Money Management Inc. in Salem, Massachusetts.

"You get a little bit of a positive reaction and then people look at the reality of it and say 'Wait a minute this doesn't really change anything right away,'" he said.

Financial shares also got a lift after banks in Europe announced plans to reshape operations.

The Royal Bank of Scotland announced a massive restructuring plan to jettison many of its businesses. The stock jumped US$1.24, or 18.8 percent, to US$7.83 in New York trading. And troubled Swiss bank UBS replaced its chief executive. UBS rose 88 cents, or 10 percent, to US$9.64.

Investors watched for news from Citigroup Inc. The company's effort to boost its equity capital could result in the federal government raising its stake in the bank this week to as much as 40 percent, a person familiar with the talks said.

The company received US$45 billion in U.S. bailout money made up primarily of debt-like preferred shares, plus federal guarantees to cover losses on some US$300 billion in risky investments. The bank has been in talks with regulators over ways the government could help strengthen the bank still further.

While a deal wasn't announced during the session yesterday, it could be come within days, the person told The Associated Press late Wednesday, asking not to be named because the discussions are still continuing.

Among health insurers, WellPoint Inc. fell US$3.78, or 9.7 percent, to US$35.34, while UnitedHealth Group Inc. fell US$2.96, or 12.9 percent, to US$20.07. Aetna Inc. fell US$3.05, or 11.3 percent, to US$24.03.

In other news, General Motors Corp. reported a US$9.6 billion loss for the fourth quarter and said it burned through US$6.2 billion of cash in the final three months of 2008. Top GM executives were in Washington, D.C., yesterday to meet with the Obama administration's auto task force to talk about restructuring and additional loans. GM fell 17 cents, or 6.7 percent, to US$2.38.

Bond prices were mixed yesterday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3 percent from 2.93 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.26 percent from 0.29 percent Wednesday.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude rose US$2.72 to settle at US$45.22 on the New York Mercantile Exchange.

Overseas, Britain's FTSE 100 rose 1.73 percent, Germany's DAX index rose 2.51 percent, and France's CAC-40 rose 1.78 percent. Earlier, Japan's Nikkei stock average slipped 0.04 percent.


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