Weak health stocks drag Wall St. lower

NEW YORK - This time, health-care stocks bore the brunt of investors' wrath.

Health insurers and drug firms, 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 $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 effect 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.

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

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

The Dow Jones industrial average fell 88.81, or 1.22 percent, to 7,182.08, pulled down by stocks including drugmaker Merck & Co. Inc., down $1.87, or 6.70 percent, at $26.04, and health-products company Johnson & Johnson, off $1.52, or 2.82 percent, at $52.44. Both companies have operations in the Philadelphia area.

The Standard & Poor's 500 index fell 12.07, or 1.58 percent, to 752.83, and the Nasdaq composite index fell 33.96, or 2.38 percent, to 1,391.47.

The Russell 2000 index of smaller companies fell 8.49, or 2.11 percent, to 392.95.

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

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

Among health insurers, WellPoint Inc. fell $3.78, or 9.66 percent, to $35.34, while UnitedHealth Group Inc. fell $2.96, or 12.85 percent, to $20.07. Aetna Inc. fell $3.05, or 11.26 percent, to $24.03.

In other news, General Motors Corp. reported a $9.6 billion loss for the fourth quarter and said it burned through $6.2 billion of cash in the final three months of 2008. Top GM executives were in Washington yesterday to meet with the Obama administration's auto task force to talk about restructuring and additional loans. GM fell 17 cents, or 6.67 percent, to $2.38.

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

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

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.