U.S. stocks lost ground on Thursday after data showing the U.S. services sector shrank unexpectedly in November offset Bank of America's plans to repay $45 billion in taxpayer bailout funds.

The U.S. services sector index fell to 48.7 in November, indicating contraction, from 50.6 in October, according to an industry report.

Wall Street initially rose after Bank of America Corp made the surprising announcement on Wednesday in a what is viewed as a victory for outgoing Chief Executive Kenneth Lewis that could free the top U.S. lender from pay curbs as it looks to hire a new CEO. Bank of America shares were up 1.6 percent to $15.90.

We actually had a pretty good feeling going into this with the Bank of America payback that had a lot of people almost jovial, said Dan Cook, senior market analyst at IG Markets in Chicago.

The ISM services doesn't seem to get as much weight as the manufacturing, but seeing it head in this direction is not a positive sign.

The Dow Jones industrial average <.DJI> dropped 27.66 points, or 0.26 percent, to 10,425.02. The Standard & Poor's 500 Index <.SPX> fell 1.23 points, or 0.11 percent, to 1,108.01. The Nasdaq Composite Index <.IXIC> gained 4.35 points, or 0.20 percent, to 2,189.38.

The numbers of U.S. workers filing new claims for unemployment fell last week, the government said, while other data showed non-farm productivity was slightly less robust than previously thought.

U.S. retailers posted much weaker-than-expected sales for November in a slow kickoff to the key holiday shopping season.

The Retail HOLDRs ETF fell nearly 1 percent. Abercrombie & Fitch Co shed 6 percent to $37.53, while Target Corp fell 3.3 percent to $46.13.

Federal Reserve Chairman Ben Bernanke, making a case for a second term, told Congress the Fed's forceful actions prevented a devastating financial crisis from getting even worse.

(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)