It was a frustrating afternoon for Liverpool after they created chance after chance to score, but found former goalkeeper Brad Friedel in superb form. And they crashed to defeat when Blackburn capitalised on their only period of superiority in the game to score through McCarthy at the start of the second half.
Rafa Benitez made three changes to his side for this the second of four games in just nine days over a busy festive period and one of those changes, Peter Crouch, almost had an instant impact when forcing Brad Friedel into a first minute save with a header.
Friedel was to be a busy goalkeeper, but Blackburn threatened briefly when Savage headed wide in the 12th minute and Pedersen's 25 yard shot needed to be saved by Reina. But the Reds were soon back on top and Friedel had to save another Crouch header in the 18th minute after Finnan's deep cross had found him unmarked.
The Reds came into this unbeaten in seven Premiership fixtures and they were playing with confidence and creating a lot of chances. Craig Bellamy, returning to his former club, was looking sharp and he was giving the Rovers defence a torrid time.
Bellamy has already scored against his ex-employers this season and he came within inches of doing so again when his 34th minute shot flew inches wide. And he'd earlier seen his 16th minute shot saved by Friedel after Carragher had won the ball in the area.
Friedel made it a hat-trick of saves from Crouch headers in the 35th minute and it was the best of the three, but Liverpool were punished for not taking their chances when Blackburn took the lead against the run of play at the start of the second half.
It came when Tugay found Pedersen in the left channel and his low cross was converted from close range by Benni McCarthy, the scorer of Blackburn's goal at Anfield earlier this season.
It was the first goal the Reds had conceded in eight Premiership games, but after dominating the first half, it was a goal that would change the game because they would now have to chase an equalizer. It was an unlikely scenario after the first 45 minutes we'd had.
Rafa Benitez responded by replacing Peter Crouch with Dirk Kuyt in the 57th minute and the Dutchman had a great chance to level the scores in the 75th minute, but Friedel was there again spread himself brilliantly and block Kuyt's point close range effort. The Reds were now back on top and Xabi Alonso hit the outside of the post with a 76 minute shot, but they couldn't find a way passed man of the match Friedel.
Luis Garcia brought another brilliant save out of Friedel as Blackburn's defending became increasing desperate and then Friedel made his best save of the match and made the points safe for Blackburn when he flung himself to his left to make a brilliant one handed save to deprive Alonso.