NEW YORK (CNN/Money) -
A surprise drop in initial unemployment claims lifted the U.S. dollar from three-year lows against the Japanese yen and pushed Treasury yields higher in anticipation of a long-awaited recovery in the job sector.
The Labor Department report said 382,000 people filed for benefits in the week ended Oct. 4 -- the lowest level since the week of Feb. 8 -- compared with a revised reading of 405,000 in the prior week. Economists, on average, expected 394,000 new claims, according to Briefing.com.
The dollar also fell to its lowest level in almost four months against the euro in early trade, but selling momentum showed signs of slowing after six consecutive weeks of losses, and the dollar rebounded modestly.
The euro purchased  1.176 U.S. dollars, down from $1.1809 in early Thursday trading.
In similar fashion, the dollar, which has shed more than five percent against the yen since mid-September, slid to ¥108.88 in early European trade before talk of Japanese intervention, and the release of the U.S. jobless report, lifted the greenback to ¥109.10.
"Japan doesn't like what is happening but they realize they are fighting a broad-based dollar decline," said Ian Gunner, head of foreign exchange research at Mellon.
Some analysts speculated that Japan, which threw more than ¥13 trillion at the foreign exchanges in the first nine months of the year, was now more concerned with slowing the yen's rise than halting it.
In the Treasury market, prices dropped on a improving view of the U.S. economy, which may come with a pickup in inflation.
The two-year note fell 3/32 to 99-28/32 to yield 1.68 percent and the five-year note held at 99-28/32 as well, with a yield of 3.14 percent.
The benchmark 10-year note shed 18/32 to 99-18/32 to 4.30 percent, up from 4.24 percent, and the 30-year bond dropped 3/4 of a point to 102-9/32 with a yield of 5.20, up from 5.17 percent yesterday.
-- Reuters contributed to the story.
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