NEW YORK (CNN/Money) - The dollar soared against the yen Tuesday as hopes for a revaluation of the Chinese yuan faded, but was flat against the euro as traders took profits on gains made earlier in the session.

Treasuries rose after the market digested a surprisingly successful three-year note auction.

The dollar bought ¥105.73, up from ¥104.76 late Monday. The euro bought $1.2772, unchanged from late Monday.

The dollar rallied to a two-month high against the yen at ¥105.95 as it looked unlikely China would unpeg its yuan from the dollar.

"There really has not been justification for the dollar rally to happen exclusively versus the euro, especially because euro zone data has been kind of positive and Japanese data has kind of languished in a funk," Lara Rhame, foreign exchange strategist with Credit Suisse First Boston, told Reuters.

The dollar has recently gained on the euro, which has fallen 6 percent since the start of the year after hitting record highs above $1.36 in the final days of 2004.

And even though the dollar slipped against the euro in late-day profit-taking, it made earlier gains thanks to President George W. Bush's budget proposal that includes the most severe cuts to domestic government programs since the Reagan administration.

Some traders see the proposal as a serious effort to tackle the deficit problem, which would bode well for the greenback. "The broad-based picture of dollar strength remains intact and further gains look very much in the cards," Tom Fitzpatrick, chief technical analyst with Citigroup Global Markets in New York, told Reuters.

But not everyone is convinced the budget and current account deficits will be resolved in the near future.

"Unless the Bush administration is capable of cutting the current account deficit in half, the dollar's decline is destined to continue," Michael Woolfolk, senior currency strategist with Bank of New York, told Reuters.

Analysts will closely watch Thursday's trade deficit announcement.

In Treasuries, the benchmark 10-year note gained 7/32 of a point to 101-23/32 to yield 4.03 percent, down from 4.06 late Monday.

The 30-year bond added 19/32 of a point to 115-6/32 to yield 4.39 percent, down from 4.43. Bond prices and yields move in opposite directions.

The five-year note edged higher 3/32 to yield 3.67 percent, and the two-year was little changed at 99-19/32, yielding 3.33 percent.

A successful auction of three-year notes surprised traders who had predicted soft demand for the $22 billion-issue, resulting in a rise in debt prices.

Solid demand also raised hopes that rest of this week's $51 billion refunding would go smoothly, including $15 billion of new five-year notes on Wednesday and $14 billion of 10-year debt on Thursday.

The three-year notes sold at a high yield of 3.47 percent, drawing bids for 2.01 times the amount on offer. That was down from November's 2.24 level but in line with the 2.00 average of previous sales, according to Reuters.