By Riva Gold and Michael Wursthorn
-- Dow Jones Industrial Average rises
-- European stocks extend winning streak
-- Treasury yields steady
Rising shares of chemical companies helped lift the S&P 500 on Thursday.
Trading activity was relatively muted as investors took advantage of some recent pullbacks and gauged the likelihood that Republicans would pass their proposal to overhaul the tax code, analysts said.
The S&P 500 continued its trend of trading in a narrow range, rising 0.1% after being down slightly earlier in the session. The Dow Jones Industrial Average gained 40 points, or 0.2%, at 22381, and the Nasdaq Composite rose less than 0.1%.
"It's likely we'll see some of that churning in a directionless market while the specifics of the [tax] legislation are debated," said Mike Allison, an Eaton Vance portfolio manager.
Shares of material companies rose 0.7% in the S&P 500, as several chemicals companies and mining firms notched gains of more than 1%. Eastman Chemical was one of the leaders, up 3%.
Shares of tech companies and financial firms were little changed Thursday after they helped lift indexes higher a day earlier, ending a four-session losing streak for the Dow industrials. The Russell 2000 index of small-capitalization stocks added 0.3%, after it rallied following the release of the tax proposal Wednesday.
While the plan is expected to benefit smaller companies that tend to generate more revenue domestically, some investors and analysts expressed concerns about legislative challenges ahead, especially after the GOP faltered in its latest attempt to repeal the Affordable Care Act.
"There was a pretty low bar in terms of the market's expectations" around the tax overhaul, said Doug Gordon, a senior portfolio manager with Russell Investments. "We still have a long way to go hashing out what potential tax policy would look like."
Republicans are proposing to sharply reduce tax rates on business and many individuals, prompting investors to sell bonds partly on expectations that the cut would boost growth and accelerate the Federal Reserve's plans to lift interest rates.
Meanwhile, fresh data pointed to steady U.S. economic growth, which could encourage the Fed to proceed with a third rate increase later this year.
U.S. economic output grew at a 3.1% annual rate in the second quarter, slightly stronger than previously thought and marking the best growth in two years, according to revised data released by the Commerce Department on Thursday.
The number of Americans applying for new unemployment benefits rose last week, the Labor Department said Thursday, at least partially reflecting job losses because of major summer storms. Still, overall jobless claims remain historically low.
The yield on the benchmark 10-year Treasury note was 2.309%, according to Tradeweb, unchanged from Wednesday when it notched its biggest daily gain since March. Yields rise as prices fall.
Investors have been stepping up bets that the Fed will raise interest rates in December, which has contributed to the rise in government bond yields.
The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was recently down 0.3% after its biggest three-day gain this year.
Elsewhere, the Stoxx Europe 600 rose 0.2%. Japan's Nikkei Stock Average added 0.5%, recovering from Wednesday's declines, while Chinese markets faced selling pressure ahead of a week-long break. The Shanghai Composite Index fell 0.2% and Hong Kong's Hang Seng Index fell 0.8% to a six-week low.
Write to Riva Gold at email@example.com and Michael Wursthorn at Michael.Wursthorn@wsj.com