NEW YORK (CNN/Money) - Treasuries fell and the dollar slid Friday following news that the trade deficit has grown more than expected; Alan Greenspan's comments Thursday night that a weaker dollar would help ease the gap contributed to the declines.

"These cross influences are confused enough that one has to stick with the broader trend that we still view as bond negative," Alan Ruskin, research director at 4CAST, told Reuters.

The benchmark 10-year note dropped 20/32 of a point to 95-21/32 to yield 4.55 percent, up from 4.47 percent late Thursday. The 30-year bond fell 28/32 of a point to 108-7/32 to yield 4.82 percent, up from 4.76 percent late Thursday. Bond prices and yields move in opposite directions.

Yields on the ten-year are now near seven-month highs.

The five-year note lost 12/32 of a point to yield 4.22 percent, while the two-year note edged lower 2/32 of a point to yield 3.79 percent. (Click here for bond charts.)

The Commerce Department reported that the trade gap totaled $58.3 billion in January, up from a revised $55.7 billion for December. It was the second-largest gap ever, behind only the November 2004 shortfall.

Economists surveyed by Briefing.com had forecast the gap would rise to $56.8 billion from the initial December reading of $56.4 billion.

A widening trade deficit has sometimes been seen as a positive in the bond market since it implies trade will drag on economic growth and keep inflation in check.

Bond traders fear inflation because it erodes the value of the fixed income-paying investment.

But the deficit news sank the dollar, as more money flowing overseas generally means slower U.S. economic growth.

This sparked worries in both the bond and currency markets that the widening trade imbalance would scare foreign investors from U.S. dollar-denominated investments, increase inflationary pressure at home and hasten more rate hikes by the Federal Reserve.

The euro bought $1.3450 Friday, up from $1.3432 late Thursday, while the dollar bought ¥104.00, down from ¥104.04 late Thursday.

"Overall, this market has been supported by foreign buyers," said Steve Harasimowicz, director of fixed income trading at Bank of America's investment management arm. "If we see an erosion of the dollar, will they forestall their purchasing until they see stability?"

And in a speech last night in New York, Greenspan indicted that a falling dollar would help correct the trade deficit.

"An acceleration of U.S. import prices, of course, would impede imports and give traction to the process of adjustment in our trade balance," Greenspan said.

Both the wider trade gap and Greenspan's comments indicate the dollar may extend losses. Traders said Treasury prices may also have further to fall, noting that Greenspan said it is unusual to see long-term yields falling while the Fed raises short-term interest rates.

This statement echoed comments made a month ago when the Fed Chairman called low long-term yields a "conundrum." The market took these words as a veiled warning that yields had fallen too far and began the sell-off, which culminated this week with a break to seven-month highs.