Bond prices surged early in the session as stocks fell hard in response to Intel's (INTC) - Get Report earnings warning. But they ended the day only modestly higher, after stocks pared their losses. The action underscored the extent to which the Treasury market was shaken by the steep rise in long-term yields over the last week, market participants said.

The gains might also have been greater if not for this morning's joint intervention by Europe, the U.S. and Japan to halt the euro's slide. On the one hand, the euro's sharp rise lifted European government bond prices, and that made Treasuries look cheap in comparison. But at the same time, the countries that participated in the intervention may sell short-term Treasuries -- a leading central-bank asset -- to finance their purchases of euros when the transaction settles.

Oil continued its slide from the 10-year highs reached earlier this week as the Clinton administration decided to release some from the nation's emergency reserves. But even that didn't provide much solace to bond investors, who continue to fret about the prospects of rising inflation and shrinking federal budget surpluses, both of which probably mean lower bond prices and higher yields.

The benchmark 10-year

Treasury note, which gained as much as 9/32 in early action, finished unchanged at 99 8/32, to 5.848%. Shorter-maturity issues ended mixed.

The 30-year

Treasury bond also ended unchanged at 104 21/32, its yield 5.912%.

At the

Chicago Board of Trade

, the December

Treasury futures contract added 2/32 to 98 5/32.

The early rally in bonds was based on the logic that a struggling stock market will help slow the economy by reining in consumer confidence, keeping the

Fed from hiking interest rates any further. "This is going to weaken the argument for a resurgence in the economy," said Tony Crescenzi, CEO of

Bondtalk.com

.

Stocks staged an impressive recovery, forcing bonds to surrender most of their gains. But the gains would have been larger to begin with, especially in the short-term sector, were it not for the intervention, Crescenzi said. The expectation that foreign central banks may sell short-term Treasuries to finance their purchases of euros stood in the way, he said.

At the same time, bond investors remain extremely wary after the developments of the last two weeks. Long-maturity yields spiked in response to rising oil prices, which point toward faster inflation, and visions of smaller federal budget surpluses, which mean fewer

buybacks of long-maturity Treasuries.

"People have been shocked by how dramatically the price of the long bond dropped," said Jim Kochan, bond strategist at

Robert W. Baird

in Milwaukee.

Some investors remain concerned that the economy will not slow enough, Kochan said. The latest

TST Recommends

Beige Book

(

definition |

source

), released on Wednesday, pointed that up, he said. "A lot of market participants expected to see more references to weakness in the economy."

Today's developments notwithstanding, long-maturity Treasuries "have been priced for low inflation and high surpluses -- two things that may be changing now," said Tom Connor, head of government bond trading at

J.P. Morgan

. Smaller surpluses are anticipated in part because both presidential candidates are promising to either tax less, spend more, or both; and because a slowing economy will generate less tax revenue.

Economic Indicators

There was no economic news, there has been no major economic news all week, and there won't be any till the August

durable goods orders report on Wednesday.

Currency and Commodities

The dollar rose against the yen and fell against the euro. It lately was worth 107.84 yen, up from 107.99. The euro was worth $0.8769, up from $0.8614. For more on currencies, see

TSC's

Currencies column.

Crude oil for November delivery at the

New York Mercantile Exchange

fell to $32.60 a barrel from $34.00.

The

Bridge Commodity Research Bureau Index

closed at 226.30 from 226.73.

Gold for December delivery at the

Comex

rose to $275.10 an ounce from $273.50.