Dec 23 (Reuters) - U.S. stock indexes erased early losses on Tuesday and the S&P 500 inched closer to record highs as latest economic data supported expectations for interest rate cuts from the Federal Reserve next year.
AI and technology stocks extended gains for a fourth session, rebounding from last week's selloff that was triggered by concerns about inflated valuations and high AI spending by companies.
Nvidia (NVDA.O), rose 2.1%, while Amazon.com (AMZN.O), Alphabet (GOOGL.O), and Broadcom (AVGO.O), rose more than 1% each.
The U.S. economy grew at its fastest pace in two years in the third quarter, an early estimate from the Commerce Department showed, fueled by robust consumer spending. GDP increased at a 4.3% annualized rate last quarter, stronger than economists' forecasts for 3.3% growth.
Other data however, painted a mixed picture of the economy. U.S. consumer confidence deteriorated in December amid deepening anxiety over jobs and income, while factory production was unchanged in November after declining in October.
"Today's Q3 GDP data feels somewhat stale. We know Q4 got off to a very rocky start, as a record long six-week government shutdown resulted in over 650,000 federal employees being temporarily furloughed without pay," said Thomas Feltmate, senior economist at TD Economics.
"This will exert a meaningful drag on near-term activity, with Q4 growth likely to slow to a sub-1%."
Traders continued to expect at least two 25-basis-points rate cuts next year, according to LSEG data, although the odds of the first reduction coming as early as January fell to 13% from 18% before the data.
At 11:45 a.m. ET, the Dow Jones Industrial Average (.DJI), rose 71.96 points, or 0.15%, to 48,434.26, the S&P 500 (.SPX), gained 17.83 points, or 0.26%, to 6,896.32 and the Nasdaq Composite (.IXIC), gained 76.39 points, or 0.33%, to 23,505.22.
All three main indexes were set for their third straight yearly gain. The S&P 500 and the Dow were also on track to rise for an eighth consecutive month.
Recent gains in U.S. stocks have spurred hopes of a "Santa Claus rally", a seasonal phenomenon where the S&P 500 posts gains in the last five trading days of the year and the first two in January, according to Stock Trader's Almanac.
This year, that period starts on Wednesday and runs through January 5.
Trading volumes were light and likely to thin out further as the holiday approaches. U.S. stock markets will close at 1 p.m. ET (1800 GMT) on Wednesday and remain shut on Thursday for Christmas.
ServiceNow (NOW.N), fell 3% after the enterprise software maker agreed to buy cybersecurity startup Armis for $7.75 billion in cash.U.S. military shipbuilder Huntington Ingalls (HII.N), edged up after President Donald Trump announced plans for a new "Trump class" of battleships, which he said would be larger, faster and "100 times more powerful" than any previously built.
Miner Freeport-McMoran (FCX.N), rose 3.1% to a more than one-year high as copper prices touched a record high and Wells Fargo raised its price target on the stock.
Declining issues outnumbered advancers by a 1.42-to-1 ratio on the NYSE, and a 1.85-to-1 ratio on the Nasdaq.
The S&P 500 posted 34 new 52-week highs and three new lows, while the Nasdaq Composite recorded 56 new highs and 125 new lows.
Reporting by Sruthi Shankar and Shashwat Chauhan in Bengaluru; Editing by Shilpi Majumdar and Shinjini Ganguli
