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July 18 (Reuters) - Wachovia Capital Markets initiated coverage of the U.S. healthcare real estate investment trust (REIT) sector with a "market weight" rating and said weakening fundamentals, above average valuations and weak economic outlook caused it to be neutral on this niche REIT segment.

However, long-term healthcare spending continues to out-pace economic growth and will drive demand in this sector, the brokerage said in a note to clients.

The brokerage started Senior Housing Properties Trust (SNH.N: Quote, Profile, Research) with an "underperform" rating and said it expects the company to lag in the near term as entry into medical office assets could divert attention from its core competencies.

The brokerage, which started Healthcare Realty Trust with an "outperform" rating, recommended the stock to investors, saying the company's proven development track record and current pipeline of $260 million will provide a channel for strong returns and growth potential into 2009-2010.

Wachovia rates Health Care Property Investors Inc (HCP.N: Quote, Profile, Research), Medical Properties Trust Inc (MPW.N: Quote, Profile, Research) and Nationwide Health Properties Inc (NHP.N: Quote, Profile, Research) "market perform." (Reporting by Santosh Nadgir in Bangalore; Editing by Amitha Rajan)