The economy grew at a 2.7 percent annual rate, faster pace than initially thought in the third quarter, according to the Commerce Department. However, momentum is likely to slow as the nation braces for deep cuts in government spending and tax increases early next year. Economists polled by Reuters had expected a reading of 2.8 percent.
And weekly jobless claims declined for a second week, falling 23,000 to a seasonally adjusted 393,000, according to the Labor Department. Economists had expected a reading of 390,000, according to a Reuters survey. The Labor Department added there was no pronounced impact of the Hurricane Sandy in last week's data.
Stocks rallied in the previous session, propelled by positive comments from President Barack Obama and Speaker John Boehner on the "fiscal cliff" issue. (Read More: 'Cliff' Talks Send Stocks on Roller Coaster Ride)
Obama said he was hopeful a deal to avert the "fiscal cliff" could be reached before Christmas. The president also highlighted some flexibility regarding taxes for high-income Americans.
Obama invited a group of corporate CEOs including Yahoo's Marissa Mayer, Coca-Cola's Mutar Kent and Goldman's Lloyd Blankfein to the White House to discuss the looming fiscal cliff.
Blankfein described Obama's plan as detailed and "very credible," but warned that marginal income tax rates may have to rise to seal a deal.
Treasury Secretary Tim Geithner, Obama's lead negotiator in the budget talks, will meet congressional leaders to discuss the issue on Thursday.
Tiffany tumbled after the luxury goods retailer missed earnings expectations and slashed its full-year profit forecast, citing difficult economic conditions in addition to tough comparisons to a year ago.
Kroger jumped after the supermarket chain beat earnings forecasts and lifted its profit outlook for the year.
Research In Motion soared after the BlackBerry maker was upgraded to "buy" from "neutral" at Goldman Sachs.
Also on the economic front, pending home sales for October will be reported at 10 am ET and the Federal Reserve Bank of Kansas City November manufacturing survey is due at 11 am ET.
The government is scheduled to auction $29 billion in 7-year notes with the results available shortly after 1pm ET.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
THURSDAY: Pending home sales, 7-yr note auction
FRIDAY: Personal income & outlays, Chicago PMI, farm prices
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