updated 1/19/2010 2:31:12 PM ET 2010-01-19T19:31:12

Managed care and drug company stocks rose Tuesday as Massachusetts voters cast ballots for a special election that could hurt Washington's push for a health care overhaul.

Major Market Indices

Republican state Sen. Scott Brown is running against Democratic Attorney General Martha Coakley to fill the Massachusetts U.S. Senate seat held by the late Sen. Edward M. Kennedy. Pre-election polls showed the race to be a dead heat.

Brown has said he would vote against a health care reform bill. His election would likely deprive Democrats of the 60-vote majority they need to avoid a Republican filibuster and pass a reform bill in the Senate.

Health insurance and pharmaceutical stocks have seen periods of volatility since early last year, when the reform debate gained momentum in Washington and investors started worrying about how it might affect the companies.

Health insurers would gain more customers under the proposed reform measures, but they're also expected to lose money on business they gain through exchanges that would be set up so individuals can buy health insurance policies.

A Brown victory would increase the chance that health care reform fails to a range of 25 percent to 30 percent, up from a prior estimate of 10 percent or less, Wachovia analyst Matt Perry said in a Tuesday research note. He said Democrats could still pass reform if Brown wins, but a Republican victory in a liberal-leaning state may spark concern.

"Other Democrats who have supported health care reform so far, and are likely to face tough elections in 2010, may be tempted to switch their vote," he wrote.

Goldman Sachs analyst Matthew Borsch said in a separate note managed care stocks likely would rally the most if Brown wins, followed by big drug companies.

Even if Coakley wins, a close race could compel President Obama to reduce the scope of his administration's agenda, and that "will read through positively to health care stocks," Miller Tabak analyst Les Funtleyder said in a note.

Merck and Pfizer shares both set 52-week highs and were among the top gainers on the Down Jones industrial average.

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