NEW YORK (CNN/Money) - Treasury bonds took a one-two hit Monday, with the yield on the ten-year note reaching a 2005 high, after a regional index on manufacturing showed an uptick in employment and a key reading on inflation came in higher than Wall Street had expected.

The dollar edged up against the euro and was down against the yen after Japan reported stronger-than-expected industrial output and retail sales figures.

The benchmark 10-year note fell 24/32 of a point to 97-3/32 to yield 4.36 percent, up from 4.27 percent late Friday. Bond prices and yields move in opposite directions. The break above 4.30 percent took yields to their highest level since early December and triggered a wave of technical selling.

"The original pressure came out of the mortgage market but once 4.30 (percent) gave way, all the black box and CTA types jumped on the bandwagon," one trader told Reuters.

The 30-year bond slid 1-3/32 points to 110 to yield 4.70 percent, up form 4.64 percent late Friday. Bond prices and yields move in opposite directions. The five-year note lost 13/32 of a point, yielding 3.99 percent. The two-year note dropped 4/32 of a point, yielding 3.60 percent.

Strong readings on U.S. inflation and manufacturing added to expectations for more interest rate hikes when, early in the session, the Commerce Department said the price index for consumer spending gained 0.2 percent in January and rose 0.3 percent when volatile food and energy prices were stripped out.

The sharp pickup from December's flat readings marked the biggest monthly increase in core prices since October 2001 and revived concerns that the overnight lending rate might rise faster and further than expected.

"This is the Fed's preferred measure of inflation...and might have markets pricing in a more aggressive Fed," Lara Rhame, foreign exchange strategist at Credit Suisse First Boston in New York, told Reuters. Inflation erodes the value of the fixed interest-paying bond.

Bonds extended losses after the Chicago purchasing management index of business activity was released.

The index firmed only slightly to 62.7 in February, from 62.4 the month before, when analysts had looked for a result of 64.0 or higher, but new orders rose and the report's employment index climbed to 57.7 from 52.8.

The results also stoked speculation that the monthly jobs report, due Friday, could finally show substantial growth in payrolls.

In currency trading, the dollar gained on the euro and slipped against the yen.

The euro bought $1.3235 Monday, down from $1.3242 late Friday, while the dollar bought ¥104.51 Monday, down from ¥105.17 late Friday.

"Good Japanese data pushed dollar/yen down, and euro/yen tipped down from around 139 yen," John McCarthy, director of foreign exchange trading at ING Capital Markets in New York told Reuters.

Japanese industrial output rose 2.1 percent during January, above market expectations. Retail sales in Japan grew last month at the fastest year-on-year pace since 1997 also encouraged views of a broad recovery.