NEW YORK — Bond prices rose sharply on Friday, rebounding from the previous session's equally sharp sell-off on what analysts said was a government unemployment report that signaled a weaker-than-expected economy.
The bellwether 30-year Treasury bond, down about 1 point on Thursday, rose just over 3/4 point, or more than $7.50 for each $1,000 in face amount. Its yield dropped to 7.87% from 7.94% Thursday.
The rally in government bond markets spilled over onto Wall Street with stock prices closing higher and the Dow Jones industrial average setting another record.
The Dow Industrials had the biggest one-day gain in its history, 69.89 points, to reach a new closing high, 2,390.34.
The Labor Department reported the nation's jobless rate fell to 6.6% in March from 6.7% the three previous months. But economists noted the government reduced the increase in February payrolls from previous estimates, and employment dropped in the manufacturing and construction industries.
"They showed an economy which was considerably less impressive than we had been led to believe from January and February statistics originally published," said Paul Boltz, financial economist for T. Rowe Price Associates Inc. in Baltimore.
The employment report had been widely anticipated in the credit markets for clues it might yield about the strength of the U.S. economy. Bond prices rose because many traders took the report as a signal of a relatively weak economy, which reduces the chances the Federal Reserve would push interest rates higher to prevent inflation.
The market's early gains were offset somewhat by a drop in the dollar, which fell because of the weak unemployment report. But the dollar rose later in the day on what traders said were technical factors and unconfirmed reports of dollar-buying by the Fed to support the currency.
Bond market analysts also said bond prices were supported by a drop in the federal funds rate, the interest on overnight loans between banks, to 5.875% from 6.625% Thursday. Many traders watch fed funds, which had hovered above 6% for much of the week, for clues to the Fed's credit policy.
Members of the Fed's policy-making group, the Federal Open Market Committee, left monetary policy unchanged at a meeting in early February, according to minutes of the meeting released Friday.
But the group indicated it was ready to tighten credit conditions if forced by economic conditions, such as inflation and the falling dollar.
Recent declines in the dollar had raised speculation the Fed might tighten credit, pushing interest rates higher to support the currency. But the employment report and the low fed funds rate helped allay those fears, analysts said.
In the secondary market for Treasury bonds, prices of short-term governments rose about point, intermediate maturities rose in the range of 11/32 point to 5/8 point and 20-year issues were up about 15/16 point, the investment firm Salomon Bros. said.
The movement of a point equals a change of $10 in the price of a bond with a $1,000 face value.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.43 to 116.69. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 4.07 to 1,219.79.
In corporate trading, industrials and utilities rose 1/8 in light dealings.