* Healthcare stocks drag on the benchmark index
* Powell-fuelled rally fades out
* Bank-heavy Milan and Marid stocks outperform
(Recasts, updates to close, changes quote)
By Agamoni Ghosh
July 11 (Reuters) - European shares closed at a two-week low on Thursday weighed down by pharma stocks on worries that U.S. government may intervene on high drug prices, while optimism from the Federal Reserve's dovish stance faded away.
The pan-European stocks benchmark .STOXX rallied earlier in the day on remarks from Fed Chair Jerome Powell but reversed course in late afternoon trading to close 0.1% lower.
The White House announced that it was ditching its push for changes to the pharma rebate structure, providing some relief to health insurance companies but hurting drugmakers, including those in Europe. Nordisk NOVOb.CO , UCB UCB.BR , Astrazeneca AZN.L and Roche ROG.S all ended nearly 2% lower, dragging the pharma index .SXDP down 0.7%, the biggest weight on the benchmark.
"Most drugmakers supported the initiative to eliminate rebates but now we see no solution to the challenges manufacturers face regarding growing rebates, " Morgan Stanley (NYSE: MS ) said in a note.
"The lack of progress in Washington suggests that the industry will face ongoing political pressure, including legislative risk."
Bank of America (NYSE: BAC ) Merrill Lynch warned in a note that depressed production for the sector across regions is unlikely to pick up materially in the near-term.
Also weighing on sentiment was the International Monetary Fund's warning that the euro zone may see prolonged anemic growth, backing the European Central Bank's (ECB) plans for fresh stimulus.
Bucking the broader pharma trend, German drugmaker Gerresheimer AG GXIG.DE rose 13% to the top of the STOXX 600 after confirming revenue guidance for the year and posting strong second quarter results. the recent bout of losses, the STOXX 600 has recouped its May losses, gaining around 6% since then, mostly on expectations that major central banks will adopt a looser monetary policy.
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