Stocks fell on Thursday as investors sold off healthcare shares on worries that President Obama's budget proposal will sap industry profits.

Merck was the Dow's biggest weight, down 6 percent at $26.25. Health insurers also fell, including Humana , which lost 18.9 percent to $23.83.

They are certainly looking at providing healthcare across the board for everyone, but to pay for that they are looking to obviously reduce revenue for some of the healthcare agencies, said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois.

(It's) the recognition that there is going to need to be some belt-tightening there within those areas.

Adding pressure, financial shares trimmed gains after a report showed the number of troubled U.S. banks soared in the fourth quarter, tempering optimism about the prospect of another government bailout for the sector. Among the laggards, Citigroup tumbled 5.2 percent to $2.39.

The Dow Jones industrial average <.DJI> fell 82.36 points, or 1.13 percent, to 7,188.53. The Standard & Poor's 500 Index <.SPX> gave up 11.26 points, or 1.47 percent, at 753.64. The Nasdaq Composite Index <.IXIC> was down 30.74 points, or 2.16 percent, at 1,394.69.

(Reporting by Leah Schnurr and Charles Mikolajczak; Editing by James Dalgleish)