Instant View: Supreme Court arguments help hospital shares

NEW YORK (Reuters) - Shares in hospitals shot up as the U.S. Supreme Court heard arguments on a major challenge to President Barack Obama's healthcare law that threatens federal tax subsidies for residents of at least 34 states to help buy health insurance. Justice Anthony Kennedy, a conservative on the nine-member court who often casts the deciding vote in close cases, raised concerns to lawyers on both sides about the possible negative impact on states if the government loses the case, suggesting he could back the Obama administration. But he did not commit to supporting either side. Hospital operators are expected to take a significant hit if the court votes against the administration and rules the subsidies illegal, as they will have to foot the bill for millions of uninsured patients. Quincy Krosby, market strategist at Prudential Financial: "I think that hearing assuaged fears - at least for now - that we were headed for overturning Obamacare." "Health care has been a favorite sector. It's really moved up to the point where analysts were saying it was frothy. Anything that questions that or can be an important negative will hold that back, and so this was a relief for investors in the sector." Brian Tanquilut, hospital sector analyst for Jefferies: "The investor community thinks four justices are in the bag, so all you need is one. Kennedy's questioning makes it sound like he is leaning in favor of upholding that provision of the law. I think people are reading that as this is a de-risking event for the hospitals, that the likelihood of it getting struck down has diminished significantly. At least that's how people are reading it. All you need really is one of the question mark justices to signal how they're leaning and I think we got that today." Ana Gupte, healthcare analyst at Leerink Partners: "The liberals have been leading the line of questioning based on all the updates we are getting. And (Supreme Court Justice Anthony) Kennedy was signaling and questioning some key issues around what this might do to the insurance market even though he acknowledges that there is some validity to the statute. But he is keeping himself and positioning himself as a swing vote." "So it feels like there are four liberal votes in the bag and Kennedy is swing and (Supreme Court Chief Justice John) Roberts, we don't know, but he has voted in favor of the government in 2012." "Considering how sold off the hospital stocks have been, most will interpret this as improving the odds that the court will rule in favor of the government." "(Insurers) are certainly not completely immune but they are far less exposed. They haven't seen the downside. They haven't been sold off as much. They have been weak in the last day and so today you are finally seeing in them in the green again. It has helped a little." (Reporting by Caroline Humer, Caroline Valetkevitch and Bill Berkrot in New York; Editing by Chizu Nomiyama)