Stocks faltered on Friday after data showed further deterioration in the labor market as the unemployment rate hit its highest since 1983, underscoring the severity of the recession.

Stocks declined further following a report showing the services sector shrank for the sixth straight month in March as recession-weary consumers tightened their belts.

The Nasdaq fared slightly better than the other indexes, helped by a more than 20-percent surge in shares of Research in Motion after the BlackBerry maker posted surprisingly strong results and gave a rosy outlook after Thursday's closing bell.

Data showed U.S. employers shed 663,000 jobs last month, pushing the unemployment rate to 8.5 percent, while January's data was revised to show 741,000 job lost, the biggest decline since October 1949.

This is still an ugly number. Just because it wasn't uglier than the consensus doesn't mean it wasn't ugly, said Robert Macintosh, chief economist at Eaton Vance Corp in Boston.

It's telling you we're in a deep recession and it's still going to be a while to get out of it, especially on the employment side of things. But you have to keep in mind that this is a lagging indicator; we're going to get bad employment numbers, along with the employment rate, even if the economy is starting to turn.

The Dow Jones industrial average <.DJI> dropped 51.69 points, or 0.65 percent, to 7,926.39. The Standard & Poor's 500 Index <.SPX> fell 5.30 points, or 0.64 percent, to 829.08. The Nasdaq Composite Index <.IXIC> lost 8.54 points, or 0.53 percent, to 1,594.09.

Financials were among the biggest decliners, giving back some of Thursday's gains following a change to an accounting rule that will give banks more flexibility when dealing with toxic assets.

Citigroup fell 2.6 percent to $2.67 while the S&P financials index <.GSPF> lost 1.1 percent.

McDonald's was the Dow's top drag, falling 1 percent to $55.79.

On the bright side, Research In Motion was among the top boosts on the Nasdaq as consumers snapped up its smartphones. RIM was up 20 percent at $58.94.

Stocks have put in a strong rally since early March, helped by growing optimism that the economic slowdown is starting to moderate. The broad S&P 500 has climbed nearly 23 percent off the 12-year lows hit in early March.

(Additional reporting by Herb Lash; Editing by James Dalgleish)