Sep. 26, 2013 at 4:11 PM ET
Stocks closed modestly higher in choppy trading on Thursday, with major averages narrowly avoiding a six-day losing streak, as investors digested the latest batch of economic news and budget debate developments in Washington.
Stocks initially took a leg higher after Reuters reported that Senior Republican Jeff Sessions said there will be no government shutdown and federal defaults. Meanwhile, House speaker John Boehner said a Republican proposal is coming that will tie federal government spending cuts to a U.S. debt limit increase.
The Dow Jones Industrial Average, which was on a 5-day losing streak, closed 55 points higher, led by Nike and Verizon.
Among key S&P sectors, consumer discretionary led the gainers, while utilities slipped.
"While the S&P 500's 3.7 percent gain through September 25 leaves it on pace to far exceed its average 0.6 percent September decline since 1945, stocks have succumbed to mild profit taking as the month winds down with the index off slightly from its recent closing high of 1,724," wrote Alec Young, global equity strategist at S&P Capital IQ. "Driving the caution are the usual suspects – the Fed and Washington's fiscal wrangling."
On the economic front, the government left its estimate for economic growth in the second quarter unchanged at 2.5 percent, according to the Commerce Department.
"Today's GDP report clarifies many Wall Street uncertainties. For one, the 2.5 percent print validates the 'no-change' decision in QE (The Federal Reserve's quantitative easing policy) ," said Todd Schoenberger, managing partner at LandColt Capital.
"Second, it's obvious with a looming government shutdown and a drop in household discretionary incomes due to implementation of the Affordable Care Act, the upcoming quarter will be significantly lower. Thus, forcing the hand of the Fed to maintain status quo in regards to its current monetary policy for the foreseeable future."
And weekly jobless claims fell 5,000 last week to a seasonally adjusted 305,000, according to the Labor Department. The four-week average of new claims fell 7,000 to 308,000, the lowest level since June 2007.
Pending home sales slipped 1.6 percent in August, declining for the third-straight month, according to the National Association of Realtors.
Budget spending must be agreed by Congress before October 1, next Tuesday, to prevent a government shutdown which could involve federal employees facing unpaid temporary leave and a delay in the payment of military personnel. Most analysts expect a deal to be reached, even if it is at the last minute, since lawmakers are unlikely to want to risk any fallout at the 2014 Congressional elections.
(Read more: Brawl in US Congress – should the world care?)
Meanwhile, the debt ceiling must be extended until later in October to allow the Treasury to continue borrowing money and honor its debt repayments.
"While a last-minute deal that avoids a default is likely by mid-November, the process is likely to be hugely contentious and protracted, maximizing headline risk," wrote Young. "That said, we don't see Washington's antics driving more than knee-jerk, short-term sell-offs similar to the fiscal cliff drama late last year. Ironically, we actually expect easing fiscal drag to be a major driver accelerating growth into 2014 as government spending stabilizes."
Treasury prices extended their losses after the government sold $29 billion in 7-year notes at a high yield of 2.058 percent. The bid-to-cover ratio, an indicator of demand, was 2.46, versus a recent average of 2.63.
The Japanese Nikkei hit a two-month high after reports from Kyodo News that the Japanese government was "urgently" considering a reduction in corporate tax rates, which could offset any negative impact from the consumption tax hike scheduled for October 1.
(Read more: Is Abenomics' second arrow missing its target?)
However, China's benchmark index fell to its lowest level since September 9, as investors booked profits on stocks that have rallied ahead of the opening of a free trade zone in Shanghai on Sunday. Plus, a nation-wide business survey, known as China's Beige Book, showed economic conditions were worse than recent positive data had suggested.
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