Turnout heavy in crucial Massachusetts Senate poll

BOSTON (Reuters) - Massachusetts voters streamed to the polls on Tuesday in a close election for a new U.S. senator that could derail Democrats' dominance in Washington and scuttle President Barack Obama's sweeping healthcare reform.

What looked likely weeks ago to be an easy Democratic victory has turned into a desperate scramble after a surge by the Republican, affable state Senator Scott Brown, over the past few weeks.

Latest opinion polls suggest Brown could defeat state Attorney General Martha Coakley, and take away the Democrats' 60-vote supermajority in Congress, which enables them to overcome Republican procedural roadblocks. Voter worries about the economy and healthcare reform have helped Brown.

In Washington, Obama spokesman Robert Gibbs said the president does not believe healthcare reform will fail if Coakley loses. But Obama is "both surprised and frustrated" and "not pleased" by the closeness of the Massachusetts race, Gibbs said.

Polls will stay open until 8 p.m. EST (0100 GMT on Wednesday). Given the expected close vote, results could take a few hours to emerge after polls close.

Reflecting Wall Street's expectations for healthcare reform, investors drove health insurance and drug company shares higher, betting a Brown victory would at least slow Obama's healthcare plans.

Hospital companies, which may gain more insured customers under health reform, saw their shares slump.

"If Brown wins, it is our view that Obamacare will not pass Congress," Avik Roy, a healthcare analyst with Monnes Crespi Hardt, said in a research note.

The Morgan Stanley Healthcare Payor Index and the AMEX Pharmaceutical index outperformed the broader market, rising 2.3 percent and 2.0 percent, respectively.

HIGH TURNOUT COULD HELP ENERGIZED REPUBLICANS

Massachusetts Secretary of State William Galvin said he was bracing for voting levels similar to that of a regular state election given the intense interest in the race.

That view was borne out as voters braved drizzle and light snow to get to the ballot box. Local media reported long lines at some polling places.

High turnout could benefit the more energized Brown campaign, even though registered Democrats in Massachusetts hold a sizable numerical advantage.

Democratic Party icon Edward Kennedy, who held the seat for almost 47 years, died in August of brain cancer. Democrat Paul Kirk was appointed by the state's governor in September to occupy Kennedy's seat and will remain in the Senate until a winner is sworn in.

Massachusetts last elected a Republican to the Senate in 1972, but the weak economy and doubts about the healthcare overhaul have moved voters to abandon political loyalties.

Their possible change of heart could not have come at a more crucial juncture for Obama.

Democrats now control 60 votes in the Senate to 40 for the Republicans. The loss of one seat could hamper the Democrats' ability to cut off debate and proceed to a vote on the planned healthcare overhaul. Brown has promised to be the Republican's 41st vote to kill healthcare legislation.

More broadly, an upset in Massachusetts, or even a narrow win for Coakley, would raise the specter of large losses for Democrats in midterm congressional elections in November.

'ANGER AND FRUSTRATION'

The Republican has attracted strong support from independent voters, including many who backed Obama in 2008.

"There's an anger, a frustration that's being felt in Massachusetts," said James Gomes, director of the Mosakowski Institute for Public Enterprise at Clark University in Massachusetts.

A number of polls over the past week have shown Brown edging ahead, although mostly within the margin of error for each survey. The nonpartisan Cook Political Report judged the race a toss-up.

In Washington, House of Representatives Democratic Leader Steny Hoyer said he expected Coakley to win but he understood why voters were unhappy. "It's a tough time to have a special election because people are angry," he said.

Millions of dollars have flooded into the state to buy nonstop television advertising for both sides, transforming a relatively sleepy contest into a bitter brawl.

Coakley has been criticized for a lackluster campaign. She took almost a week off from the campaign trail around Christmas, at a time when Brown's appeal was on the rise.

(Editing by Eric Beech and Cynthia Osterman)