President Barack Obama on Wednesday praised a healthcare compromise reached by Senate Democratic negotiators and said it could clear the way for passing a sweeping healthcare reform overhaul.

After four days of closed-door talks, Senate negotiators agreed late on Tuesday to replace a government-run public insurance option with a scaled-back non-profit approach, possibly resolving the bill's biggest stumbling block.

The Senate made critical progress last night with a creative new framework that I believe will help pave the way for final passage and an historic achievement on behalf of the American people. I support this effort, Obama said.

Shares of U.S. health insurers initially rose on Wednesday on news the Senate might jettison a government-run insurance plan viewed as damaging to the industry and as a possible first step to a government takeover of the sector.

Under the Senate deal, the federal Office of Personnel Management would negotiate with private insurers to offer national non-profit plans similar to those offered to federal employees.

Liberal Senate negotiators, who backed the public option as a way to create more competition for insurers, agreed to drop their support in exchange for allowing people aged 55 to 64 to buy in to the Medicare health plan for the elderly, which now begins at age 65.

The provisions have been submitted to the non-partisan Congressional Budget Office for cost estimates, which are expected within the next five days.

The government-run plan has been one of the biggest hurdles for the healthcare overhaul, Obama's top domestic priority, as several moderates balked at expanding government involvement.

The S&P Managed Healthcare index of larger U.S. health insurers initially rose by as much as 2.5 percent before slipping back to trade slightly lower, in line with the broader market.

The Senate is on its 10th day of debate on the bill, which would extend coverage to 30 million of the estimated 46 million uninsured Americans and halt industry practices like refusing coverage to those with pre-existing medical conditions.

Senators are racing the clock to meet a self-imposed end-of-year deadline for the bill's final passage. It would still need to be reconciled with the House version in January.

(Editing by Eric Beech)