Bonds surge as stocks tumble

NEW YORK (CNNMoney.com) -- Bond prices surged Thursday as investors sought shelter as the equity market tumbled amid continued credit market fears.

The dollar gained against the euro and slipped versus the yen.

The 10-year rose 21/32, or $6.56 on a $1,000 note, to yield 4.77 percent, down from 4.86 Wednesday. Bond prices and yields move in opposite directions.

The 30-year climbed 13/32 to yield 5.02 percent, down from 5.04 percent in the previous session. Longer-dated treasury prices shed gains after an auction of $9 billion of 30-year bonds drew lackluster demand.

The five-year gained 21/32 to yield 4.57 percent, while the two-year yields posted their sharpest one-day decline in three years, climbing 12/32 to yield 4.46 percent.

Stocks plummeted amid credit fears Thursday, with the Dow industrials falling 383 points, or 2.8 percent.

Credit concerns flared up after French bank BNP Paribas suspended redemptions in three funds and the European Central Bank was forced to inject extra funds into the system in a quick overnight tender.

"Probably the No. 1 factor creating a strong bid in the Treasury market is the announcement that the ECB was adding liquidity in Europe to ease a credit crunch there," John Miller, head of fund management of Nuveen Investments in Chicago, told Reuters.

After witnessing the Federal Reserve holding interest rates steady at its policy meeting earlier this week, Wall Street began betting that the central bank will cut interest rates at its next meeting in September to help with the current credit market turmoil.

Interest rate futures suggested a 62 percent chance that the Fed will cut rates at its next meeting in September, up from 20 percent just a day earlier. A rate cut in October is priced in.

In currency trading, the euro bought $1.3677, down sharply from $1.3796. The dollar bought ¥118.30, down from ¥119.73 Wednesday.

--from staff and wire reports