HMO shares rise on reform, earnings optimism

* Coventry Q2 beats estimates

* Index of large HMOs rises 7.8 percent

NEW YORK, July 28 (Reuters) - Shares of U.S. health insurers rose broadly on Tuesday amid hopes a health reform bill would not include a government-run option, and positive earnings news from Coventry Health Care Inc (CVH.N), analysts said.

The Associated Press reported on Monday that a bipartisan Senate group was close to a compromise that would exclude a government insurance option.

The possibility of such an option has rattled investors and drawn strong opposition from insurers that say such a plan would destroy the private insurance marketplace.

"That, I think, was what people want to hear," Ana Gupte, a managed-care analyst with Sanford Bernstein, said of the possible exclusion of a government run option.

Also on Tuesday, Coventry Health posted second-quarter results that easily topped analyst forecasts and raised its full-year profit forecast. Shares of Aetna (AET.N) also rose as analysts said the insurer's new, lower forecast was achievable.

"The two things people are worried about are the fundamentals and the politics," Gupte said. "It's kind of both coming together nicely at the same time."

Thomas Carroll, an analyst with Stifel Nicolaus, also noted that smaller Medicaid health insurer Centene Corp (CNC.N) made positive comments about 2010 reimbursement rate environment, helping fellow Medicaid HMOs.

"Earnings are coming in better than expected, and the reform headlines are reading pretty good," Carroll said.

The S&P Managed Health Care index .GSPHMO of large U.S. health insurers was up 7.8 percent in afternoon trading.

Aetna was up 14 percent, Coventry was 12 percent higher, while Cigna Corp (CI.N) rose 9.3 percent, all on the New York Stock Exchange. Centene was up 11.1 percent, leading the Medicaid health insurers.

(Reporting by Lewis Krauskopf; editing by Gunna Dickson)