NEW YORK (CNNMoney.com) -- Labor market worries boosted Treasury prices Thursday after a spike in weekly unemployment claims.
The benchmark 10-year note rose 19/32 to 103 2/32, while its yield fell to 3.62% from 3.7% late Wednesday. Prices and yields move in opposite directions.
The 30-year bond rose 29/32 to 103 28/32, with its yield falling to 4.27% from 4.32%.
The 2-year note rose 5/32 to 100 12/32. Its yield fell to 2.17% from 2.26%.
Bonds also rose Wednesday after the Federal Reserve said slow U.S. economic activity could continue into next year.
Job weakness: Investors bought Treasurys after the Labor Department said applications for unemployment benefits jumped by 15,000 last week to 444,000. Economists polled by Briefing.com had expected the number of new claims to fall to 420,000.
Economic weakness often prompts investors to shift their money out of the more volatile stock market and corporate bonds into the safety of Treasurys, which are backed by the U.S. government.
The Dow Jones index fell more than 300 points during Thursday trading after the report's release and news of sluggish retail sales.
More indications of labor market breakdowns are expected Friday, when the Labor Department releases its monthly jobs report. Economists expect the government to report an eighth straight month of job reductions.
Taming inflation: Bond investors were also paying close attention to signals that inflation was being brought under control. Falling inflation drives up the value of Treasurys.
On the open market, the dollar rose versus the 15-nation euro, following a decline in oil prices and signs of weakness in the European economy.
Oil and the dollar have had an inverse relationship over the past several months as investors bought crude and other commodities to hedge against inflation. But in the past month and a half, oil prices have fallen sharply from an all-time high set in July. Oil prices settled down $1.46 a barrel at the end of Thursday trading.
"The consensus view is that inflation has peaked, and that's certainly helped by the falling commodity prices," said Wan-Chong Kung, senior fund manager at First American Funds.
The dollar has also been getting a boost from signs of weakness overseas. European Central Bank president Jean-Claude Trichet expressed concern Thursday about both inflation of the euro and slowing economic growth.
In the United States, signs of higher productivity and lower wages helped quell fears of runaway dollar inflation as well.
The productivity of American workers climbed 4.3% in the second quarter, the Labor Department reported Thursday, much larger than expected. At the same time labor costs fell 0.5%.
The Dow Jones Industrial Average, a stock market index used to gauge the performance of American stock exchanges, fell 344.65 at the close of trading Thursday.

Wall Street
The exact reason for the drop is unknown, with different news agencies pointing to different causes. ''The New York Times'' cites a rise in unemployment numbers released Thursday by the U.S. Department of Labor and a fall in retail sales released by several large corporations.

According to the Associated Press, the number of people claiming weekly unemployment benefits rose 15,000 last week to 444,000, which, according to ''The New York Times'' is near a five-year high.

“This morning’s employment numbers continue to indicate that the labor sector remains soft at best and looks to continue to shed jobs throughout the remainder of the year,” Joseph Brusuelas, chief economist at Merk Investments, said in a statement to ''The New York Times''.

One major corporation that posted a gain in sales was Wal-Mart, with a 3 percent boost, which resulted in a one penny loss in their stock. Fellow retailer Target posted a sales loss. Shares of energy companies ExxonMobil and Chevron fell by 1.5 and 3 percent, respectively.

The other two major American stock indices fell too. The S&P 500 fell 2.99 percent while the Nasdaq composite index fell 3.20 percent. The Dow's 344.65-point fall left the index at 11,188.23, a 2.99 percent decrease from the close of trading Wednesday.

According to ''The New York Times'', the drop is the largest since June of this year, but an expected announcement Friday of August unemployment data could cause the index to rise.

''The New York Times'' and the Associated Press both report that the number of jobs in the service sector rose in August according to research done by the Institute for Supply Management. This is the first rise in the number of jobs in several months.

CNNMoney.com points to the rise in the price of Treasury bonds as a reaction to data released Wednesday that the American economy would continue to be slow in 2009.