Bond Market

News that the economy added more than one-quarter million jobs last month triggered a powerful sell-off in the Treasury market Friday, sending bond prices into a tailspin.

The newly gloomy mood in bonds spread to other financial markets, weakening U.S. stock prices and the dollar. Behind the sell-off were renewed fears that the Federal Reserve Board would act to contain inflation arising from the employment strength by pushing up interest rates as early as Aug. 16.

Reaction was swift to the Labor Department’s morning report that the economy created 259,000 new jobs in July, about 60,000 more than consensus forecasts and in excess of even the highest expectations.

Reports of slower sales of goods ranging from houses to cars prompted wide speculation that the economy had cooled from its robust pace of late last year.

The reports had dampened expectations of an imminent hike in interest rates and contributed to a modest rally in Treasury bonds, which tend to grow in value during periods of stable rates.

But the July job growth reported Friday was viewed as likely to prompt the Federal Reserve to boost the federal funds rate by at least one-quarter percentage point in order to contain inflation pressures arising from a strong economy.