NEW YORK (CNN/Money) - News that a number of central banks indicated they would diversify their reserves out of Treasuries and into other investments such as the euro sent the dollar tumbling Tuesday, and pressured bonds as well.

The euro bought $1.3254, up from $1.3065 late Monday. The dollar bought ¥104.10, down from ¥105.57 late Monday.

South Korea, which has the world's fourth-largest stockpile of reserves that has traditionally been held in U.S. debt, was the driving force behind Tuesday's selloff after it announced its plans to diversify into other currencies.

"The dollar is under pressure. This started early in the Far East, with news of South Korea's plan to change reserve ratios," Andrew Busch, global FX strategist, capital markets, with Harris Nesbitt, told Reuters.

According to Treasury data, South Korean public and private investors hold $69 billion of U.S. Treasury debt, while the central bank's foreign exchange reserves are worth some $200 billion.

"(South Korea's announcement) comes on the heels of Russia saying the same thing. This has fueled speculation that Japan may do the same," Busch said. "That basically hit us and it ignited the euro to rally and continue to put in new highs" against the dollar.

The dollar did post a brief recovery during the session after the Conference Board's consumer confidence index for February came in above economists' forecasts, but could not hold onto gains.

Worries about burgeoning inflation combined with the possibility of a decline in foreign central bank demand to send yields soaring.

The benchmark 10-year note lost 8/32 of a point to 97-21/32 to yield 4.29 percent, up from 4.26 late Friday. The 30-year bond sank 20/32 of a point to 110-9/32 to yield 4.68 percent, up from 4.65 late Friday. Bond prices and yields move in opposite directions.

The five-year note fell 2/32 of a point to 98-10/32, yielding 3.87 percent, while the two-year was flat at 99-13/32, yielding 3.43 percent.

The bond market was closed Monday for President's Day holiday.

Bond traders will look ahead to the consumer price report due out Wednesday. Wall Street is looking for a 0.2 percent gain in January, but a surprise 0.8 percent jump in producer costs has traders braced for a strong reading.

More substantial prices could mean that a greater likelihood that the Federal Reserve will more aggressively raise interest rates.