NEW YORK (CNN/Money) - Treasury prices snapped a week-long rally to fall on Friday, kicking yields up from four-decade lows, after a surprise drop in the U.S. unemployment rate took gloomy markets off guard.

The economy added 39,000 new jobs in August with the net gain all in the government sector, the Labor Department said. But the jobless rate dipped to 5.7 percent in August, far below expectations for a steady 5.9 percent.

While some analysts played down the unemployment rate as unreliable -- it is based on a much smaller survey than the payrolls figures -- it was enough to trigger a wave of profit-taking by traders and investors after a week of gains.

Traders began taking off bets that the Federal Reserve will move to cut interest rates -- an increasingly popular belief in recent weeks -- any time soon.

The Treasury market has come a long way recently with yields on the five- and 10-year note hitting four-decade troughs this week. Yields on 30-year bonds got to within spitting distance of an all-time low.

While 10-year note yields rose to 4.04 percent on Friday from 3.93 percent the day before, they were still down compared with last week's 4.13 percent close. Prices, which move in the opposite direction, fell 19/32 to 103 even.

At the very short end, prices on the two-year note dove 8/32 to 100-3/32, taking yields up to 2.07 percent from 1.95 percent late on Thursday.

The five-year note dipped 17/32 to 100-26/32, lifting yields to 3.07 percent from 2.96 percent, while the 30-year bond dropped more than a full point to 107-22/32 yielding 4.87 percent from 4.78 percent.

With the short-end underperforming, the yield curve flattened and the gap between two-year and 30-year yields narrowed to 280 basis points from 284 basis points Thursday.

"There may be some signs that a fledgling recovery is beginning to take hold in the labor market, but we have had these kinds of moves [before], so we don't want to make too much out of it," Jared Bernstein, labor economist at the Economic Policy Institute, told CNNfn's CNNmoney Morning program.

The increase in hours worked, combined with an increase in the number of temporary workers hired in August, suggest that businesses could be gearing up to spend and hire more workers.

In the currency market, the U.S. dollar rose a full percent against the euro, extending a rally sparked earlier in the day by an unexpected drop in the U.S. unemployment rate.

The euro shed 1 percent from the previous U.S. close to trade as low as 98.07 cents in late U.S. trading. The dollar purchased ¥118.83, up from ¥118.23 yesterday.  

-- from staff and wire reports