* Republican congressman Sessions doesn't expect gov't shutdown or default
* Jobless claims drop, second-quarter growth estimate unrevised at 2.5 pct
* Indexes up: Dow 0.2 pct, S&P 0.1 pct, Nasdaq 0.6 pct
By Caroline Valetkevitch
NEW YORK, Sept 26 U.S. stocks edged higher on Thursday on positive job market data but pared gains as investors worried the clock was ticking for Washington lawmakers to reach deals that would avoid a government shutdown and a possible U.S. debt default.
The S&P 500 index would snap five straight days of losses if ends higher.
Consumer discretionary shares gave the biggest boost to the S&P 500, which was up for the first session since the Federal Reserve announced on Sept. 18 it would keep its stimulus program unchanged for now.
The U.S. Congress, struggling to avert a government shutdown next week, was warned by the Obama administration on Wednesday that the Treasury was quickly running out of funds to pay government bills and could soon face a damaging debt default.
Also threatening to harm the recovering economy, federal agency shutdowns could begin next Tuesday with the new fiscal year unless Congress comes up with emergency funds.
"This correction we've seen over the last week or so... was not unexpected. And depending upon how ugly the continuing resolution of the debt ceiling is in Washington over the course of the next several weeks, the market could continue to drift lower," said Phil Orlando, chief equity market strategist at Federated Investors in New York.
The Dow Jones industrial average was up 23.60 points, or 0.15 percent, at 15,296.86. The Standard & Poor's 500 Index was up 2.02 points, or 0.12 percent, at 1,694.79. The Nasdaq Composite Index was up 20.61 points, or 0.55 percent, at 3,781.71.
In a promising sign for the labor market, the number of Americans filing new claims for jobless benefits fell last week to a near six-year low.
Among top percentage gainers on the Nasdaq, Bed Bath and Beyond rose 4.6 percent to $77.61, a day after it reported a jump in second-quarter profit as the U.S. housing market recovery spurred demand.
Nike Inc will report results after the closing bell. It will be the first earnings report for the retailer as a member of the blue-chip Dow Jones industrial average. Shares were up 1.2 percent to $69.74.
Among decliners, Eli Lilly lost 3.5 percent to $50.79 and was among the biggest drags on the S&P 500 after its experimental cancer drug failed to improve survival among breast cancer patients without their cancer worsening in a late-stage trial.
House of Representatives Speaker John Boehner urged his caucus to show flexibility over a measure to keep the government open. Republican Representative Pete Sessions said there would be no shutdown or government default.
Other economic data on Thursday showed the U.S. government left its estimate for economic growth in the second quarter unchanged at 2.5 percent.
In the latest speech by a Fed official, Minneapolis Fed President Narayana Kocherlakota said the central bank should do everything it can to bring unemployment down as quickly as possible, even at the cost of a little inflation.
Traders were still unsure about the immediate future of the U.S. central bank's stimulus that has boosted the S&P 500 nearly 19 percent for the year.