By Kate Gibson

U.S. stocks on Friday fell for a third straight session and headed for weekly declines, as investors reacted to the government's layoff count for December, which cast last year as the worst for labor since World War II ended in 1945.

"There was a reasonable amount of negative expectations built into this report. That said, there are not a lot of bright spots. We're concerned that the equity market can only absorb so much bad news. The pace at which economic conditions are deteriorating is certainly a cause for concern," said Dean Curnutt, president of Macro Risk Advisors.

The Dow Jones Industrial Average (DJI) was off 74.71 points at 8,667.75, with all but five of its 30 components trading lower.

The Labor Department said employers axed 524,000 jobs in December, compared to projections ranging from 600,000 to the 700,000 in losses estimated by payrolls processor ADP Wednesday. The U.S. unemployment rate rose to 7.2%, the highest in 16 years. .

"If there is a silver lining, you might argue that the jobs report reflects the severe credit crisis that we experienced late last year but does not yet reflect any of the recent improvement that we have seen in credit markets ... as well as the large upcoming Obama stimulus plan," said Michael Sheldon, chief market strategist, RDM Financial Group Inc.

On Capitol Hill, President-elect Barack Obama told a news conference the jobs report underlines the need for quick action on his stimulus proposal.

The S&P 500 (SPX) declined 11.59 to 898.14, with energy, consumer discretionary and telecommunication services pacing the losses, which included all but one of the broad-market index's 10 industry groups.

One rising stock in the consumer discretionary sector was KB Home (KBH). Shares rose more than 1% after the home builder said its fourth-quarter loss was narrower than a year ago. .

"Personal consumption has the biggest potential for fallout. The sector to hide in, so to speak, would be consumer staples," said Curnutt of Macro Risk Advisors.

The technology-laden Nasdaq Composite (RIXF) shed 27.71 point to stand at 1,589.3. .

Volume on the New York Stock Exchange neared 675 million shares, and decliners topped advancing issues nearly 2 to 1. On the Nasdaq, more than 488 million shares traded, and decliners overshot advancers more than 2 to 1.

On the New York Mercantile Exchange, crude-oil futures fell 87 cents to end at $40.83 a barrel.

Gold futures gained, with the front-month contract closing 50 cents higher at $855 an ounce. The precious metal finished 2.8% off for the week.

Active stocks

Shares of Palm Inc. (PALM) rallied more than 36% to mark a second day of strong gains after the company introduced its new touch-screen smartphone. .

CVS Caremark Corp. (CVS) shares dropped 11% after the drug-store chain projected a 2009 profit below expectations.

For some, getting a pink slip can be lucrative, with two top Dell Inc. (DELL) executives leaving the faltering computer maker slated to receive more than $11 million in severance pay. .

Ahead of the jobs report, Asian stocks closed flat to lower, with losses in Tokyo, South Korea and Hong Kong.

In Europe, shares traded lower as an initial bounce after the release of the U.S. jobs data proved short-lived. .

Major U.S. stock indexes had closed mixed Thursday, as a lowered profit outlook from Wal-Mart Stores Inc. (WMT) hurt the Dow industrials, and expectations for a better-than-expected profit helped Sears Holdings Corp. (SHLD).

In the final hour of Thursday's trading, investors seemed cheered by news of a breakthrough agreement that could help curtail home foreclosures. But on Friday, the American Bankers Association spoke out against the proposal.

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