WASHINGTON - Democrats pushing for healthcare reform shrugged off their losses in two governors races and said on Wednesday the results made it more imperative to deliver on campaign promises to overhaul a failing system.

A reduced Democratic turnout and a drop in support from independent voters fueled Republican wins in Virginia and New Jersey, but Democrats said the outcome would not sidetrack President Barack Obama's top domestic priority -- a sweeping healthcare overhaul.

I would not read too much into it. I saw a depressed Democratic base last night, and what that told me is Democrats need to deliver, said Democratic Representative Gerry Connolly of Virginia, where Republicans swept the top state offices.

We have to pass healthcare, Connolly said. The message I took away is, we should make sure we give Democrats something to be excited about.

Financial markets appeared unconvinced.

The Morgan Stanley Healthcare Payor index ended up 4.65 percent, while the Amex Pharmaceutical index rose 1.19 percent as investors bet the election results could slow the Democrats' drive for healthcare legislation.

You had fairly convincing Republican wins in Virginia and New Jersey, a heavily Democratic state, said Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

Losing will complicate matters for them in getting the healthcare plan through, added political analyst Norm Ornstein of the American Enterprise Institute think tank.

It will create another frisson of fear among the skittish Democrats, the freshmen, the Blue Dogs (a group of moderate Democrats) and so on in terms of taking that leap themselves in voting for a healthcare plan, Ornstein added.

Exit polls in both states showed broad economic discontent among independent voters, a potential warning sign for incumbents in both parties next year, when all House members and a third of the 100 senators face re-election.

Republicans said the results should give Democrats pause about backing a package that could reach $1 trillion in costs to overhaul the healthcare system.


America doesn't want the federal government running its health care, Republican National Committee Chairman Michael Steele said, adding that a vote for healthcare reform would be something I'm going to chew them up on next year.

The healthcare bill in the House and one being prepared in the Senate are designed to rein in costs, expand coverage to millions of uninsured people and halt insurance practices such as denying coverage to those with pre-existing conditions.

Obama's push for healthcare reform, a central tenet of his presidential campaign and a major emphasis of congressional Democrats in recent elections, has been slowed by battles over its size and cost.

Moderate Democrats in both chambers have balked at the price tag and plans for a new government-run insurance program. Party leaders in the Senate and House have struggled to find a compromise approach to ease their concerns.

Democratic leaders tried to put a brave face on a tough election night. House of Representatives Speaker Nancy Pelosi noted that Democrats won both special elections to fill vacant House seats on Tuesday, giving them two more likely votes in support of a reform bill headed to the floor in the next few days.

With the wins in New York and California, Democrats will have 258 seats in the 435-member House, where 218 votes are needed to pass the healthcare overhaul bill unveiled by Democratic leaders last week.

We won last night, Pelosi told reporters. From our standpoint, we picked up votes.

Nevertheless it is in the Senate where healthcare legislation faces a much tougher fight, and winning over skeptical Democratic waverers will be critical.

Representative Chris Van Hollen, who heads the Democratic House campaign committee, said party members should be encouraged that a Democrat won in an upstate New York House race that was the only election where healthcare reform and other Obama initiatives in Congress became a direct issue.

Democrat Bill Owens won after a series of Republican heavyweights endorsed a third-party conservative challenger, leading the Republican candidate to withdraw and back Owens.

It's the first time a Democrat has held that seat in over a hundred years. These issues were debated in that race, Van Hollen said.

(Additional reporting by Donna Smith in Washington, Caroline Valetkevitch and Angela Moon in New York; Editing by Simon Denyer and Will Dunham)