NEW YORK (CNN/Money) - The dollar gained on the euro and the yen Thursday as traders bet the monthly payrolls report due Friday would show robust jobs growth.

But in the Treasury bond market a tepid rally fizzled, leaving bonds little changed as investors worried that the Federal Reserve might step up its interest rate hikes if the jobs report comes in strong.

In currency trading, the dollar bought ¥105.29, up from ¥104.75 late Wednesday, with the euro falling to $1.3108; it bought $1.3128 late Wednesday in New York.

In bond trading, the benchmark 10-year note ended little changed, leaving its yield at 4.38 percent.

The 30-year bond edged down a tick but its yield was also little changed at 4.74 percent.

The five-year note lost a tick to yield 4.00 percent, and the two-year note also edged lower to yield 3.58 percent.

Bonds prices had a brief lift from an upward revision to fourth-quarter productivity figures, since more output per hour and lower unit labor costs means strong demand can be met without creating runaway inflation.

But more up-to-date numbers on the services sector released shortly after showed that hiring picked up sharply in February, raising the risk of wage-driven price increases.

"That's the fundamental fear," Kenneth Hackel, co-head of fixed-income research at RBS Greenwich Capital, told Reuters. "Without wage inflation you don't get real inflation, but with it inflation is almost guaranteed."

Bond traders hate inflation, which erodes the value of their fixed income investments. Inflation worries have kept the 10-year near its highest yield since Dec. 2, when it reached 4.42 percent during the session and ended the day at 4.41 percent in New York, according to Reuters.

Short-term yields are already at their highest levels in three years as the market priced in at least three more quarter-point hikes from the Fed at coming policy meetings, according to Reuters.

Earlier in the day, a government report showed the number of Americans filing initial jobless claims dipped last week to 310,000, as expected, suggesting continued improvement in the nation's labor market.

The release had traders anticipating a strong February payrolls report on Friday, which analysts said has the potential to lift benchmark yields up near the 4.64 percent peaks hit last July.

Economists expect February hiring data to show a gain of some 220,000 jobs last month, well above January's disappointing 146,000 increase.

In more Fed news, in testimony to the House Budget Committee Wednesday Chairman Alan Greenspan said the economy is growing at a reasonably good pace but the country must tackle budget deficits by restraining spending.