Stocks rose broadly on Tuesday, lifting the Dow and the S&P 500 to fresh 15-month closing highs as investors bet a potential Republican victory in Massachusetts' Senate race could stall Obama's reform agenda.

Wall Street also got a boost from technology shares, which rallied in anticipation of strong earnings from bellwether International Business Machines Corp , which rose 1.8 percent to $134.14, making it the Dow's top boost.

Indeed, after the bell, IBM delivered quarterly earnings that beat Wall Street's forecasts.

But healthcare shares rallied the most in the regular session on hopes that policy gridlock in Washington would slow the healthcare overhaul, removing a threat to the profits of insurers and drug companies.

The S&P Healthcare Index <.GSPA> climbed 2 percent, with drug company Eli Lilly , up 4.4 percent at $37.41, among the standouts. Health insurers' shares also rallied briskly, with Humana Inc , up 7.1 percent at $51.94.

Massachusetts voters were deciding a tight race on Tuesday to replace the late Edward Kennedy, a Democrat. The loss of one seat in the U.S. Senate could hurt the Democrats' ability to proceed to a vote on the planned healthcare overhaul that seemed to be in the final stages of the legislative process.

A Republican win would be a positive for the markets since it would mean increased potential for gridlock in Washington, said Carmine Grigoli, chief U.S. strategist at Mizuho Securities USA in New York. This is probably especially true now, given the very large social agenda of the Obama administration.

The Dow Jones industrial average <.DJI> jumped 115.78 points, or 1.09 percent, to end at 10,725.43. The Standard & Poor's 500 Index <.SPX> shot up 14.20 points, or 1.25 percent, to 1,150.23. The Nasdaq Composite Index <.IXIC> climbed 32.41 points, or 1.42 percent, to 2,320.40.

The reform bills under debate in Congress would reshape the healthcare insurance market through new regulations, taxes and other changes. The healthcare overhaul is President Barack Obama's top domestic priority, and the White House said on Tuesday that Obama does not believe healthcare reform is dead even should the Democrat, Martha Coakley, lose.

Health insurer Aetna Inc gained 4.2 percent to $32.66. Drugmaker Merck & Co , a Dow component, gained 3 percent to $40.62.

The Dow also received a boost from McDonald's Corp after Credit Suisse upgraded the fast food giant, saying its international businesses were a potential driver of earnings.

McDonald's stock gained 1.9 percent to $63.48 and was the Dow's third top percentage gainer, ranking behind 3M Co , up 2.1 percent at $85.12.

All 10 S&P 500 industry sectors ended in positive territory.

Strong momentum carried the Dow and the S&P 500 to fresh 15-month closing highs and lifted the Nasdaq to its highest close in 16 months. The S&P 500 is now up 70 percent since hitting bottom in early March 2009.

IBM SLIPS DESPITE OUTLOOK

Shares of large-cap technology companies, including Apple Inc , boosted the Nasdaq before IBM's earnings. Apple, the maker of the iPhone, was up 4.4 percent at $215.04.

The PHLX Semiconductor Index <.SOXX> advanced 1.8 percent.

International Business Machines Corp, a major technology services company, also raised its profit target for 2010, but its stock dipped 0.5 percent to $133.40 in after-hours trading as some investors booked profits following their strong run-up recently.

Citigroup Inc rose 3.5 percent to $3.54 in regular trading after it reported a fourth-quarter loss that narrowed from the previous year. The loss came on charges linked to repaying government funds, following JPMorgan Chase & Co's disappointing results on Friday.

Kraft Foods Inc was the biggest drag on the Dow, falling 0.6 percent to $29.41 after it agreed to a revised cash-and-stock deal to buy Cadbury for about $19.6 billion.

In other acquisition news, Tyco International agreed to buy Broadview Security, which operates as Brink's Home Security Holdings Inc , for $1.9 billion. Brink's shares surged 32.2 percent to $41.54.

On the New York Stock Exchange, about 1.04 billion shares changed hands, below last year's estimated daily average of 2.18 billion. On the Nasdaq, about 2.08 billion shares traded, above last year's daily average of 1.63 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 7 to 2, while on the Nasdaq, about nine stocks rose for every four that fell.

(Editing by Jan Paschal)

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