Drug stocks in free fall, Merck loses 6.7% and PFE drops to new superlow $12.70.

U.S. stocks fell in volatile trade on Thursday as investors sold off shares of healthcare companies such as Merck & Co (MRK.N) on worries that President Obama's budget proposal will strangle profits.

A batch of sour economic data added to the gloom, spurring investors to sell shares in big consumer companies such as McDonald's Corp (MCD.N) and Coca-Cola Co (KO.N), which slid 3 percent.

The plan to expand healthcare coverage and curb costs calls for cutting Medicare payments to private insurers, letting consumers buy cheaper medicines and preventing drug companies from making deals that block generic competition. For details see [ID:nN26548210].

Merck was the Dow's biggest weight, down 6.7 percent at $26.04. Health insurers also fell, including Humana (HUM.N), which lost 19.5 percent to $23.64.

"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.

The Dow Jones industrial average .DJI dropped 88.81 points, or 1.22 percent, to 7,182.08. The Standard & Poor's 500 Index .SPX shed 12.07 points, or 1.58 percent, to 752.83. The Nasdaq Composite Index .IXIC fell 33.96 points, or 2.38 percent, to 1,391.47.