UPDATE 1-Citigroup upgrades hospital sector to "overweight"

May 11 (Reuters) - Citigroup raised its hospital sector view, saying labor cost savings have lowered 2009 earnings risk and potential upside from healthcare reform “is not nearly baked into the cake.”

Citigroup analyst Gary Taylor said headcount reductions and wage freezes helped hospitals beat market expectations in the first quarter, while upgrading the sector to “overweight” from “equal-weight.”

Also, Taylor said the sustainably lower labor costs in 2009 will largely offset the higher bad debt trends still expected in second half of the year.

“Despite the substantial YTD (year-to-date) appreciation of the hospital stocks, we still see better risk/reward than we did on January 1st,” he added. (Reporting by Anuradha Ramanathan in Bangalore; Editing by Anil D’Silva)