NEW YORK (CNNfn) - Treasury prices ended slightly higher Monday in a notably quiet session, receiving support as investors reallocated money to bonds from U.S. technology stocks amid a sharp plunge in the Nasdaq composite index.
Analysts said the equity market was the focus of the session, with shorter-dated maturities benefiting from a flight to quality to Treasurys. Analysts attributed the slump in the Nasdaq, which fell over 6 percent in late trade, to the breakdown of settlement talks in the government's antitrust case against Microsoft Corp. (MSFT: Research, Estimates) over the weekend.
"The dominant influence (in the bond market) is the weakness in the Nasdaq," Bill Sullivan, senior economist at Morgan Stanley Dean Witter, said.
But analysts noted a divergence between shorter-dated securities, such as two-year notes, and longer-dated issues, such as 30-year bonds, throughout the session. A report on U.S. manufacturing activity showing continued economic growth limited gains on longer-dated issues.
Shortly after 3 p.m. ET, the 30-year Treasury bond rose 1/32 of a point to 105-30/32. Its yield, which moves inversely to the price, fell to 5.83 percent from 5.84 percent Friday. Ten-year Treasury notes gained 3/32 to 103-24/32, their yield falling to 5.99 percent from 6.02 percent Friday.
The latest economic news pointed to continued strength in the economy. The
National Association of Purchasing Management index of manufacturing activity fell to 55.8 in March from 56.9 in February. All key components remained above the 50 level, indicating the manufacturing sector is expanding.
Analysts said the closely watched prices paid component was worrisome, rising from 74.1 to 79.8, its highest level since 1995, reflecting a rise in crude oil prices.
In other economic news, U.S. construction spending rose 1.5 percent in February against a 2.2 percent gain in January, according to the U.S. Commerce Department. The number was well above analysts' expectations of a 0.2 percent increase.
The strong data suggest interest rates have not risen to levels that would cause any restrain on the economy. The Federal Reserve has hiked rates five times since June in an effort to cool the economy and keep inflation at bay. The belief is widespread it will boost rates again at its next monetary policy meeting May 16. There even is speculation of a tightening prior to the next meeting, but analysts say that is unlikely.
In the first session of a new quarter, trading volume was subdued. Looking ahead, Fed chief Alan Greenspan is scheduled to give several speeches in the next two weeks, which may stir activity.
But the market will be on the defensive ahead of Friday's key March employment report, with many expecting continued firmness in the labor market. Analysts surveyed by Briefing.com forecast a robust gain of 375,000 in non-farm payrolls against 43,000 in February, and the unemployment rate to drop to 4 percent from 4.1 percent in February.
(Click here for a look at Briefing.com's economic calendar.)
Dollar rebounds vs. yen
The dollar rebounded against the yen Monday after the Bank of Japan (BOJ) intervened in the currency markets overnight in order to curb the yen's recent strength.
The BOJ sold as much as $10 billion in yen for dollars, according to analysts.
On Friday, the Japanese currency set a three-month high against the dollar and record high against the euro.
Analysts said news that Japanese Prime Minister Keizo Obuchi is ill also bolstered the dollar. "You have the intervention and political uncertainty about Obuchi -- that's still supporting the dollar," said Harv Kalirai, senior economist at IDEAglobal.com.
Shortly after 3 p.m. ET, the dollar traded at 104.79 yen, up from 103.39 yen Friday, a 1.4 percent gain in the dollar's value. Meanwhile, the dollar continued to hover within a narrow range against the euro, which sold for 95.82 cents, up from 95.62 cents Friday. 
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