NEW YORK (CNNMoney.com) - Treasury bond prices tumbled and the dollar fell Thursday after the European Central Bank raised a key interest rate to the highest level in three years -- and signaled more rate hikes were coming.

The benchmark 10-year Treasury note fell 13/32 to 98-29/32, pushing its yield up to 4.63 percent from 4.58 percent late Wednesday.

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The 30-year bond tumbled 29/32 to 98-3/32, yielding 4.61 percent, up from 4.56 percent the previous session. Bond prices and yields move in opposite directions.

The five-year note declined 6/32 to yield 4.66 percent, and the two-year note edged lower one tick, yielding 4.71 percent.

The European Central Bank raised its key rate by a quarter-percentage point, to 2.5 percent, the highest since 2003, and signaled that more increases were likely as it tries to keep inflation from heating up. (Full story.)

The selloff in bonds came as investors bet on lower demand for U.S. investments amid signs that Europe will keep raising rates.

"The rate rise in the ECB has been pressuring the bond market -- all of the European bond market is down at this point -- and that is starting to push its way into our bond market," Andrew Brenner, director of fixed income at Investec U.S., told Reuters.

Japan's central bank also has hinted that it is ready to end its ultra-easy monetary policy and raise rates from near zero.

The shift in Europe and Japan comes amid expectations that the Fed will soon end the rate-hiking campaign it began in June 2004, pressuring longer maturity bonds.

An employment report released earlier in the session also dragged on bonds.

The government said the number of Americans filing new claims for jobless benefits rose 15,000 to 294,000 last week. The increase was larger than analysts had expected, but the Labor Department said the jump was partly skewed by two holidays in February. (Full story.)

The report -- the only government economic reading on tap for Thursday -- offered another sign of a strong job market. Some economists fear a tight employment market could lead to upward pressure on wages and spur inflation.

Bond investors hate inflation because it erodes the value of the fixed-interest paying investments.

In currency trading, the dollar tumbled against the euro and the yen.

The euro bought $1.2039, up from $1.1918 late Wednesday, while the dollar bought ¥115.88, down from 116.08 in the previous session.

-- from staff and wire reports

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