U.S. Stocks Shed Early Gains As Health Care Weighs

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MarketWatch

March 3, 2010 Wednesday 4:38 PM EST

SECTION: NEWS & COMMENTARY; Markets; Market Snapshot

LENGTH: 614 words

HEADLINE: U.S. stocks shed early gains as health care weighs

BYLINE: Peter McKay, MarketWatch .

Donna Kardos Yesalavich and Kristina Peterson contributed to this article.

NEW YORK (MarketWatch) — Stocks faltered Wednesday, hurt by weakness in the health-care sector fueled by unpromising test results for a new Alzheimer’s drug and a new call by President Obama to pass federal health-care legislation.

The market rallied through most of the session, aided by favorable readings of jobs, service-sector activity, and the Federal Reserve’s beige book of regional indicators. But the gains dried up late in the session.

The Dow Jones Industrial Average ($INDU) ended with a 9.22-point decline at 10,396.76, after rising more than 60 points at its morning high. It’s down 0.3% year-to-date. The session decline marked the second time in a row that the Dow failed to maintain an intraday rally that could have put it in the black for 2010.

The Nasdaq Composite Index (COMP) slipped by a fraction of a point to 2,280.68. The S&P 500 ($SPX) was up 0.48 point to 1,118.79. Both indexes were flat in percentage terms.

Pfizer Inc. (PFE) was the Dow’s weakest component, with its shares off 1.6% after Medivation Inc. (MDVN) said its experimental Alzheimer’s disease treatment Dimebon, which was in development with Pfizer, failed to show effectiveness in a large late-stage study. The news sent shares of Medivation, which is not a Dow stock, plunging 67.5%.

Health insurers clung to gains after the speech but a number of drug distributors lost ground after Obama proposed elimination of “wasteful” subsidies of pharmaceutical companies.

Obama said he is seeking to push the “long and wrenching debate” over health care into its final stages and asked lawmakers to schedule a vote on overhaul legislation “in the next few weeks.”

Health-care stocks have been sensitive to the possibility that any possible changes enacted in Washington might cut into private providers’ profits. The sector picked up a bit in mid-January when Republicans picked up a 41st seat in the Senate — a development that was thought by many to dim the prospects of passage of a health bill. But on Wednesday, investors had to reconsider the possibility that a bill might get through after all.

“A lot of the legislative news has already been priced into these stocks, so they’re not exactly getting killed,” said Todd Leone, head trader at Cowen & Co. “But at the same time, passage of any bill would be a negative for the sector if and when it happens. I think we’re looking at about a 50-50 possibility of that at this point.”

The session’s strong economic data helped basic-materials and industrial stocks, which tend to be sensitive to the pace of global recovery. Caterpillar Inc. (CAT) and Alcoa Inc. (AA) were up 0.7% and 0.8% respectively, while General Electric Co. (GE) was up 0.8%.

Among stocks to watch, Novell Inc. (NOVL) shares surged 28% to $6.08, topping an offer price announced late Tuesday from hedge fund Elliott Associates and sparking speculation another software company or hedge fund could step in with a higher bid.

Volume was below-average, with composite turnover in New York Stock Exchange-listed companies hitting 4 billion shares.

Treasury prices edged lower. The benchmark 10-year note was off 3/32 to 3.621%.

The euro strengthened versus the dollar following Greece’s announcement of an austerity plan meant to address its debt crisis. The U.S. Dollar Index ($DXY) was off 0.7%.

The dollar’s weakness helped to push up prices of raw materials. The broad Dow Jones-UBS Commodity Index was up 1.1%, helped by a 1.5% jump in oil. Crude futures rose for a second straight day, up $1.19 to $80.87 a barrel, the highest close in nearly two months.

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