NEW YORK (CNN/Money) - The U.S. dollar slumped broadly Thursday under the weight of global security concerns fueled by a fake bomb that caused a delay for Eurostar, a train that runs between Britain and France.

But the U.S. currency clawed back some losses after reports that Pakistan may have surrounded a senior member of al Qaeda, traders said.

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At around 3:30 p.m. ET, the euro rose to $1.2383, up from $1.2237 late Wednesday, but off the session high of $1.2400. The dollar was quoted at ¥106.74, down from ¥108.30 late Wednesday.

The bomb hoax preyed on markets still jittery from last week's bombings in Madrid, linked to Islamist militants, which killed more than 200 people.

The U.S. currency was pressured all day, undermined by a broad rally in the yen. Investment in Japanese equities is surging and the Bank of Japan is absent from the marketplace after a series of heavy foreign exchange interventions.

"The U.S. dollar has been under a bit of pressure anyway, and then (we had) the Eurostar story and that allowed the market really to get its teeth into the dollar," said Steve Barrow, senior currency strategist at Bear Stearns in London.

A security alert in the Paris area delayed Eurostar service between Britain and continental Europe after a telephone caller told police of a suspicious package on tracks north of Paris, according to French railroad company SNCF.

French police said an object found on the tracks turned out to be only an empty oxygen canister.

In addition, Pakistani President Pervez Musharraf told CNN he believed troops had surrounded a "high-value" al Qaeda target in Pakistan near the border with Afghanistan.

Two Pakistani government sources told CNN that intelligence indicates the surrounded figure is Ayman al-Zawahiri, al Qaeda's number two leader. The report briefly lifted the equity market.

In the bond market, Treasurys fell after a survey of regional U.S. industry proved softer than expected overall but was counter-balanced by a sign of a pick-up in inflationary pressure.

At 3:30 p.m. ET, the benchmark 10-year note lost 9/32 of a point to 102-2/32 to yield 3.75 percent, up from 3.70 percent late Wednesday. The 30-year bond shed 14/32 of a point to 110-10/32 to yield 4.70 percent, up from 4.66 percent late Wednesday. Bond prices and yields move in opposite directions.

The two-year note lost 1/32 of a point to 100-7/32 with a yield of 1.52 percent, while the five-year note dropped 6/32 to 99-19/32 with a yield of 2.71 percent.

The Philadelphia Federal Reserve's measure of business activity fell to 24.2 in March from 31.4 in February. Analysts had expected a dip to 30.0. However, the reaction was muted as some in the market had already been betting on a steep drop after a poor New York Fed business survey early in the week.

Apart from the Philadelphia Fed data, traders noted that trading was choppy as dealers moved funds back and forth between large new corporate issuances and Treasurys.

Early in the day, U.S. data showed fewer people claiming first-time jobless benefits last week and an unexpectedly large rise in producer-level inflation.

First-time U.S. jobless claims dropped to 336,000 last week, which was also the week when the monthly payrolls survey was conducted, from 342,000 the previous week. Analysts had looked for a rise to 345,000.

In another report, the government said U.S. producer prices rose 0.6 percent in January, more than the 0.4 percent climb analysts had expected.

Stripping out food and energy, core PPI rose 0.3 percent, against estimates of a 0.1 percent gain. But the annual pace slowed slightly, to 0.9 percent.  

-- Reuters contributed to the story