NEW YORK (CNN/Money) - U.S. Treasurys powered ahead Thursday after surprisingly weak labor data revived talk of an economic recovery failing to generate jobs, stirring speculation next week's employment report could be a poor one.

Around 4:00 p.m. ET, the benchmark 10-year note jumped 17/32 of a point to 101-27/32, pushing its yield down to 4.15 percent from 4.23 percent late on Wednesday. The 30-year bond climbed 31/32 of a point to 106-9/32, taking the yield to 4.96 percent from 5.03 and breaking below the 5.00 percent level for the first time in a week.

The two-year note was trading 5/32 of a point higher at 99-31/32, yielding 2.15 percent compared with a high yield of 2.22 percent seen in Wednesday's auction of $27 billion in new paper. Five-year notes added 11/32 of a point to 100-4/32, giving a yield of 3.22 percent, down from 3.31 percent Wednesday.

Jobless claims rose to 403,000 in the week ended Aug. 24, up from 395,000 the prior week and contrary to forecasts of a dip to 387,000. It was the first rise above the 400,000 mark in nearly two months, indicating the labor market remains stagnant at best.

"It looks like the troubles in the equity market have jolted business confidence and made employers reluctant to take on new workers," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets.

Another gauge of the job market, the Conference Board's help-wanted index, fell to 44 in July from 47 the month before, suggesting the economy was not growing quickly enough to generate new jobs -- much like the recovery from the 1990-91 recession.

"It causes concern that the [economic] recovery isn't going to be a very robust one at this point and lacking job growth," said Kim Rupert, senior economist at Standard & Poor's.

Treasurys have also gained as fund managers have had to buy bonds to match an unusually large month-end adjustment to leading benchmark indexes. Sometimes Wall Street dealers push prices higher to try and profit before expected buying.

Meanwhile, investors are reluctant to short-sell the market before the upcoming long holiday weekend and the anniversary of the Sept. 11 attacks. The incessant U.S. saber-rattling over Iraq is also making market players reluctant to let go of super-safe government bonds.

A stable stock market did little to dent demand for Treasurys, with the Standard & Poor's 500 index shrugging off the poor data to claw back to unchanged.

Still, with inflation low and the Fed seen keeping benchmark rates steady or perhaps trimming them later in the year, two-year yields of 2.14 percent are a slender 39 basis points above the 1.75 percent fed funds rate.

That has come even though central bank officials have made it clear they believe policy is already accommodative enough.

Adding to the economic uncertainty was a sharp fall in the Federal Reserve Bank of Chicago's National Activity Index to minus 0.25 in July from plus 0.20 in June.

The drop broke a string of positive readings and the Chicago Fed attributed it mainly to weakness in labor market indicators.

In the currency market, the dollar fell across the board Thursday as renewed weakness on Wall Street heightened concern over the state of the U.S. recovery, keeping investors cautious as they digested economic data.

Around 4:00 p.m. ET, the euro bought 98.40 U.S. cents, up from 97.88 cents late Wednesday, and the dollar bought ¥118.19, down from ¥118.96 Wednesday.

"At the moment, currency markets are not making independent moves. They are taking cues from weak equities in the U.S., and the dollar is the main sufferer," said Paul Lambert, head of currencies in London at Deutsche Asset Management.  

-- from staff and wire reports