U.S. stocks fell on Friday for a third time this week as the Nasdaq Composite Index hit its steepest drop since Feb. 27, 2007, following a 5 percent rise in unemployment raising investors concern of an economic recession.

Since 1949, the unemployment rate has never risen by this magnitude without the economy being in recession, said John Ryding, chief U.S. economist, Bear Stearns in research notes.

U.S. payrolls grew by 18,000 last month, about one-quarter the rate forecast by economists, and unemployment jumped to a two-year high of 5 percent. On Jan. 2, the Institute for Supply Management's manufacturing index had its steepest drop in five years, falling to 47.7 for December. The jobless rate increased to 5 percent from 4.7 percent in November and had previously been under 5 percent for the past 25 consecutive months.

Down for a sixth consecutive session, the Nasdaq was the worst hit, losing 98.03 points, or 3.8 percent, to 2,504.65, with the tech-heavy index falling to lows not seen since the end of August last year.

The Dow Jones Industrial Average fell 256.5 points, or 2 percent, to 12,800.2, with 29 of the blue-chip index's 30 components finishing in the red, resulting in a weekly fall of 4.3 percent. The S&P 500 slipped 35.53, or 2.5 percent, to 1,411.63, bringing its three-day loss to 3.9 percent, the most since it fell 4.6 percent to start 2000. Ten shares declined for every one that rose on the New York Stock Exchange.

A range of computer companies in the S&P 500 fell the most in five years. Apple, the iPhone maker and biggest gainer among technology stocks in the S&P 500 last year, lost 7.6 percent to $180.05. Research In Motion Ltd., maker of the BlackBerry e-mail device, slumped 8.4 percent to $103.35. Intel dropped 8.1 percent to $22.67, the lowest since June.

Unemployment Apple Intel