NEW YORK (CNNfn) - Treasury bond prices fell more than a point Tuesday, sending yields to their highest level in nearly two months, after the Federal Reserve signaled concern over rising inflation.
In a widely expected move, the Fed at its policy making meeting voted to keep its main lending rate unchanged at 5.25 percent. But signaling worries over an overheating economy, the central bank adopted a tightening bias, suggesting it may hike rates at its next meeting Nov. 16.
The move took the market by surprise.
"I imagine it caught the market off guard," said Bruce Alston, who manages $1.5 billion in bonds for Value Line Asset Management
Just before 3:15 p.m. ET, the price of the benchmark 30-year Treasury bond fell 1-4/32 to 99-10/32. Its yield, which moves inversely to the price, rose to 6.17 percent from 6.09 percent Monday.
Despite the apparent surprise, analysts see plenty of inflation-suggesting reasons for the shift toward rising rates ahead. Reports Friday showed manufacturing activity surged in September while Americans continued to spend at a brisk pace last month.
Unemployment is at a 29-year low while factory orders and home sales are buoyant. Commodity prices are rising as overseas economies recover from recession
Still, immediate signs of inflation are muted. Producer prices, consumer prices and payroll data have come in weaker than expected.
As such, most analysts accurately forecast the Fed's move while seeing reason for an economy-cooling rate hike ahead.
"Inflation in the pipeline is building," Value Line's Alston said. "We're probably going to see a strong employment number and that's not going to be helpful."
The Labor Department reports on October employment data Friday.
In addition, rising gold prices, with their suggestion of inflation, kept bonds in check Tuesday. In New York, gold for December delivery rose $9 to $327 an ounce.
"Greenspan's confidence in the predictive value of gold (as an inflation indicator) might be high enough that, when combined with other critical predictors . . . could push Greenspan to either hawkish words or action," said Tony Crescenzi, market strategist at Miller Tabak & Co.
Earlier, bonds showed little reaction to news that the Conference Board's Index of Leading Economic Indicators, a gauge of future economic activity, fell an expected 0.1 percent in August.
The slight drop to 107.9 percent still suggests the economy will remain strong in the months ahead.
Dollar weakens
The dollar, meanwhile, moved of its best levels against the major currencies after the Fed's interest rate decision.
Just before 3:15 p.m. ET, the dollar rose to 106.62 yen from 106.20 Monday, a 0.37 percent rise in the dollar's value. But the U.S. currency climbed as high as 107.57 earlier Tuesday.
The dollar has been strengthening against the yen since early Monday, when a survey of business sentiment in Japan sparked some concern over that nation's economic recovery.
Also helping the dollar was Monday's U.S. stock market rebound, which tends to draw investors into dollar-denominated securities
The dollar, however, weakened against the euro after being higher against the European currency earlier Tuesday. It cost $1.0745 to buy a euro, compared with $1.0737 Monday, a 0.13 percent fall in the dollar's value. 
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