NEW YORK (CNN/Money) - Government bond prices rallied Thursday after a dismal stock market performance and a report that the economy grew at the slowest pace in two years, while the dollar ended mixed.

The benchmark 10-year note rose 19/32 of a point to 98-24/32 to yield 4.16 percent, down slightly from 4.23 percent late Wednesday. The 30-year bond also rose, up 27/32 of a point to 113-11/32 to yield 4.49 percent, falling from 4.55 percent Wednesday. Bond prices and yields move in opposite directions.

The five-year note rose 12/32 of a point, yielding 3.83 percent, while the two-year note gained 4/32, yielding 3.57 percent.

Traders bought government debt, a safe-haven investment, late Thursday after the Dow sunk by over 120 points.

Earlier in the day, the Commerce Department released figures for the first quarter gross domestic product, which indicated that the economy grew at the weakest rate in two years. The report, recognized as the broadest measure of the nation's economic activity, showed an annual pace of growth of 3.1 percent, down from the 3.8 percent rise in the fourth quarter of 2004.

Economists surveyed by Briefing.com had forecast growth at a 3.5 percent yearly pace.

A bright spot amongst the economic uncertainty came when the Labor Department released their jobless claims report, which met expectations. Americans filing jobless claim benefits for the first time grew by 21,000 last week. At the same time, the government agency said continued claims declined to the lowest level in four years.

Initial claims for state unemployment aid rose to 320,000, also matching Wall Street forecasts, compared with an upwardly revised 299,000 the previous week.

Thursday's weak economic data, combined with rising inflation have many analysts wondering what the Federal Reserve Bank's next move will be during its meeting next week. Inflation hurts bonds because it erodes the value of fixed-income investments.

"Price pressures keep the Fed in quarter-point tightening mode and economic weakness fuels speculation from economic Cassandras. Together, this translates into a bond market positive," Chris Low, a chief economist at FTN Financial told Reuters.

Bond traders will try to gain further guidance through Friday's personal income report, which includes the Federal Reserve's preferred inflation gauge, and Tuesday's Federal Open Market Committee meeting.

In currency markets, the dollar was mixed against the euro and the yen.

The euro bought $1.2893, down from $1.2933 late Wednesday. The dollar bought ¥106.06 late Thursday, up from ¥105.88 in the previous session.

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