(For coverage of healthcare reform, click on [nN20512341])
* Olympia Snowe is first Republican to back overhaul
* Committee endorses bill in victory for Obama
* Senate Finance version to be merged with second bill (Adds reaction, details)
WASHINGTON, Oct 13 (Reuters) - A key U.S. Senate committee endorsed a sweeping healthcare overhaul on Tuesday, gaining the support of an influential Republican and delivering President Barack Obama a victory on his top domestic priority.
The Democratic-controlled Senate Finance Committee approved the measure on a 14-9 vote, with Senator Olympia Snowe becoming the first Republican in Congress to back a healthcare reform bill.
"Today we reached a critical milestone in our effort to reform our healthcare system," Obama said after the vote, warning there were still big challenges ahead for healthcare reform.
The bill, the last of five pending health measures to clear a committee in Congress, will be merged with the Senate health panel's version in the next few weeks for a full Senate debate and floor votes.
Snowe, who had been courted by Obama and his fellow Democrats, said she still had reservations about the overhaul and could not guarantee her continued support as it advances.
"My vote today is my vote today. It doesn't forecast what my vote will be tomorrow," Snowe said.
Health insurer companies stocks fell on fears reform was gaining steam and would hurt profits if it passed. The S&P Managed Health Care index .GSPHMO of large health insurers was down 1.9 percent. [nN13134772]
Snowe's support for the bill "definitively shifts the political balance in Democrats' favor," healthcare equities analyst Avik Roy said.
The vote gave another shot of momentum to the healthcare drive and was good news for Obama, who has been criticized for taking too much on board from wars in Iraq and Afghanistan to climate change and gay rights.
The proposal drafted by Democratic Chairman Max Baucus was designed to reduce costs, regulate insurers and expand coverage. [nN13186448] [nN13208050]
"Pretty much everything has been said and now it's time to get the job done," Baucus said. "Americans are looking for common-sense solutions."
Republicans condemned the plan as a costly and heavy-handed government intrusion into the private healthcare sector and said the measure would get even worse as it moves forward.
"We can now see clearly that the bill continues its march leftward," said Senator Charles Grassley, the senior Republican on the panel. "This bill is already moving on a slippery slope to more government control of healthcare."
Snowe's support could give Democrats a crucial swing vote as they try to hold the 60 Senate votes needed to overcome procedural roadblocks. Democrats control exactly 60 seats in the 100-member Senate.
Two weeks of panel debate left the key elements of the committee plan intact. Support was strengthened by last week's estimate from nonpartisan analysts that it would cost $829 billion -- well below Obama's target of $900 billion -- and meet the president's goal of reducing the budget deficit.
But the final bill drew criticism on a variety of fronts, with advocates saying it should cover more of the uninsured and labor unions opposing its tax on expansive insurance plans, which would hit some unions.
"Senate leaders must make major improvements in the bill before it moves to the floor of the U.S. Senate," said Gerald McEntee, president of the American Federation of State, County and Municipal Employees, one of about 30 unions that will sponsor ads opposing the measure.
Snowe and Democratic Senator Blanche Lincoln, a moderate from Arkansas, urged Baucus to make sure the Finance Committee bill was not drastically altered in the merger with the Senate health panel.
Baucus said after the vote he was not concerned with how long the merger of the two Senate bills might take but was more interested in producing a balanced final product.
"Let's make sure we get the merger right. Let's not botch it," he told reporters.
The Senate Finance Committee bill requires all U.S. citizens and legal residents to have health insurance and provides subsidies on a sliding scale to help them buy it.
It would create state-based exchanges where individuals and small businesses would shop for insurance and would bar insurers from refusing to cover people with pre-existing conditions or dropping those with serious illnesses.
The bill does not include a government-run "public" insurance option backed by Obama and liberal Democrats as a way to create competition for insurers. Republican critics say that approach would undermine the private insurance industry.
All three bills in the House of Representatives and the other Senate bill, passed by the Health Committee, include a public insurance option. Supporters have vowed a Senate floor fight over the issue.
Any bill produced by the Senate ultimately will have to be merged with the House's final bill. Democratic leaders in the House are working to merge their three measures into a single bill for House action.
Democratic senators condemned an attack on Monday on the Senate Finance bill by the insurance industry, which paid for a report charging the bill would drive up costs and insurance premiums.
"The insurance industry ought to be ashamed of this report," said Democratic Senator John Kerry. "The results were simply not valid." (Editing by Cynthia Osterman)