NEW YORK (AP) _ Bonds fell sharply Friday, reversing two days of gains, after an economic report fanned fears of an interest rate increase later this month.

The price of the benchmark 30-year Treasury bond fell 1 5/8 point, or $16.25 per $1,000 in face value. Its yield, which moves in the opposite direction, rose to 6.17 percent from 6.04 percent.

A report showing a stronger than expected increase in June payrolls heightened concerns that the Federal Reserve might raise rates at its next meeting on Aug. 24. Higher rates would hurt the value of bonds.

The Labor Department reported that businesses added more than 300,000 jobs to their payrolls and increased wages by a larger-than-expected amount in July. Unemployment held steady at 4.3 percent.

In the broader market, prices of short-term Treasury securities were down between 9/32 point and 17/32 point, and intermediate maturities were off 3/4 point to 1 3/16 point, reported Bridge Telerate, a financial information service.

Yields on three-month Treasury bills were 4.78 percent as the discount rose 0.07 percentage point to 4.66 percent. Six-month yields were 5.03 percent, as the discount rose 0.10 percentage point to 4.84 percent. One-year yields were 5.12 percent as the discount rose by 0.10 percentage point from late Thursday to 4.87 percent.

Yields are the interest bonds pay by maturity, while the discount is the interest at which they are sold.

The federal funds rate, the interest on overnight loans between banks, fell to 4.88 percent from 5.06 percent.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell 1 1/8 point to 115 30/32. The average yield to maturity rose to 5.68 percent from 5.61 percent.