With 99% of the vote counted, Republican Scott Brown was leading his opponent, Massachusetts' Democratic Attorney General Martha Coakley, 52% to 47%, according to the Associated Press, which declared Mr. Brown the winner.
The Brown victory forces the White House and congressional leaders to decide how—or whether—to salvage their long-sought health-care overhaul. Rushing the bill after losing Massachusetts carries political risks. So does letting it collapse.
Anticipating rough sledding for the bill, the S&P health-care sector stock index surged by more than 2% Tuesday, leading all other industry sectors, with managed-care stocks posting strong gains.
Inside the Park Plaza hotel in Boston, thousands of Brown supporters packed the second-floor ballroom chanting, "John Kerry's next, John Kerry's next." Later the chant went up, "Yes we did, Yes we did," a tweak at Mr. Obama's 2008 signature line.
"Let them take a look at what happened in Massachusetts," Mr. Brown said in his victory speech, referring to the coming midterm elections. "What happened here in Massachusetts can happen all over the country."
At Coakley headquarters, the mood grew somber as it became clear that a loss was at hand, and some started dissecting where the campaign went wrong. In her concession speech, Ms. Coakley said she received a call from Mr. Obama, who told her, "We can't win them all." Ms. Coakley added: "Though our campaign ends tonight we know our mission goes on."
Other Democratic priorities are now also uncertain. Although they still hold substantial majorities in both chambers, nervous Democrats with an eye on November midterm elections could start to keep their distance from the White House. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) will be under pressure to negotiate with Republicans who oppose the administration's overhaul of financial regulation, another centerpiece bill, congressional aides said. The loss also sparked what could become a bitter fight between liberals who urged Democrats to keep on course with health care, and centrists who argued the party needed to focus on the economy. Some of the latter suggested the party drop its health-care overhaul altogether.
As recently as a couple of weeks ago, few gave the 50-year-old Mr. Brown, a state senator, a chance to win the special election prompted by the death of liberal icon Sen. Edward Kennedy. A Republican last held a Senate seat here in 1979. Yet polls showed Mr. Brown benefited from antigovernment sentiment, a sour economy and discontent with Mr. Obama's agenda.
Mr. Brown will become the 41st Republican in the Senate, breaking the Democratic Party's 60-vote majority, and ensuring the minority has enough votes to block legislation.
The election results signal challenges for Democratic prospects in midterm elections this fall, when the party will try to protect its majorities in the House and Senate. A handful of Democrats facing competitive races have announced plans to retire, and party officials are trying to prevent more following suit. Republicans, too, face challenges as the party navigates internal strife between anti-establishment activists and the party's Washington leadership, which remains unpopular.
Independents, who appeared to swing for Mr. Brown in Massachusetts, tend to be more anti-incumbent than anti-Democrat. A new Wall Street Journal/NBC poll shows nearly six in 10 independent voters think it's time to "give a new person a chance" rather than reelect their representatives. About half of all voters feel that way.
In Littleton, Mass., Alex Olsen, a professor at the University of Massachusetts and an independent, said he's fed up with Mr. Obama and the Democratic majority. He voiced strong discontent with efforts to push the health bill through the Senate. "They're just trying to ram things down our throats," said Mr. Olsen, 65.
Democratic officials were already assessing their plans for this year's elections. Strategists said Tuesday that for the rest of the year the party must downplay health care and focus on addressing voter concerns about the economy. "You've got to focus on jobs. Nothing is more important in this economy than jobs," said Delaware Gov. Jack Markell, chairman of the Democratic Governors Association.
A faster recovery could soothe the national angst. Presidents Reagan and Clinton suffered big reversals in their first two years in office, only to rebound along with the economy.
Coming almost a year to the day of his inauguration, Tuesday's result is a blow to Mr. Obama, who was elected with heavy support from independents. He flew to Boston Sunday to stump for Ms. Coakley.
Even before Mr. Brown's win, Democrats engaged in a round of finger-pointing, with some blaming Ms. Coakley for running an ineffective campaign and others arguing that the party's national leadership and its focus on health care helped turn swing voters against the candidate.
White House officials declined to take responsibility for Ms. Coakley's defeat, saying the president and his policies remain popular in Massachusetts. White House press secretary Robert Gibbs released a statement saying only that Mr. Obama had spoken to both candidates and congratulated Mr. Brown.
On the campaign trail, Mr. Brown sounded like a member of the GOP caucus in Washington, calling for tax and spending cuts, as well as opposing the current health-care bill. He touted himself as the "41st" Republican senator, reinforcing the threat he poses to the Obama agenda.
Not all of his stances are clearly conservative. On social issues, he supports some abortion rights, although he opposes partial-birth abortion and supported efforts to overturn Massachusetts's same-sex marriage law. In one bill he sponsored, Mr. Brown took aim at auto emissions, a goal more commonly associated with Democrats.
"I'm Scott Brown from Wrentham," he said on the campaign trail over the weekend, skirting questions about whether he's a conservative.
In a recent interview, state Sen. Brian A. Joyce, a Coakley supporter, described Mr. Brown as a "moderate" along the lines of most Massachusetts Republicans. Mr. Joyce said Mr. Brown was once considered a "sacrificial lamb," running a presumably losing effort to catapult himself into higher state office. "I guess he didn't get the memo," Mr. Joyce said.
From the start, Mr. Brown was the more aggressive candidate. He moved in late December to shape the race, airing one ad that featured President John F. Kennedy and highlighted his support for tax cuts, and another that portrayed him as a regular guy driving a pickup.
By the second week of January, polls suggested he could pose a serious challenge. In the final days, Democrats tried to make the election about health care and abortion rights. Ms. Coakley seemed to gain momentum, especially over the weekend, as she condemned Wall Street's latest round of bonuses.
One intangible effect on voters has been Mr. Brown's easygoing way on the trail, in contrast with Ms. Coakley, who sometimes seemed uncomfortable. In the stretch run, Mr. Brown tried to turn Democratic attacks to his advantage, mustering mock anger after Mr. Obama and others derided his pickup truck. "When you start talking about my truck, that's where I draw the line," he said.
"He's given Massachusetts voters a voice for change," said Kelly Marie, a homemaker from North Andover. She's an independent who leans toward Republicans, and has been frustrated by the Democratic lock on the state's Senate seats. "I've felt disenfranchised for a lot of years," she said.