NEW YORK (CNN/Money) - Bonds prices fell Friday as traders reacted to a Dow rally and mixed economic reports on income and spending.

The dollar was mixed vs. the euro and the yen.

The benchmark 10-year note was down 14/32 of a point to 98-12/32 to yield 4.20 percent, up from 4.16 late Thursday. The yield on the benchmark note was at about 4.20 percent ahead of reports on personal income and employment costs but drifted following the numbers were announced.

The 30-year bond also fell, down 16/32 of a point to 112 31/32 to yield 4.51 percent, up from 4.49 late Thursday. Bond prices and yields move in opposite directions.

The five-year note lost 12/32 of a point, yielding 3.90 percent, while the two-year note fell 5/32, yielding 3.66 percent.

Treasuries had enjoyed a two-day rally on soft economic data and Thursday's disappointing sessions for stocks, triggering a wave of profit taking early Friday.

The Dow rebounded from Thursday's loss on Friday afternoon, climbing over 100 points on news that oil prices fell over $2 a barrel.

Treasuries climbed early Friday after the Labor Department released a report showing that employment costs rose a less-than-expected 0.7 percent in the first quarter.

The rise in what employers pay in wages and benefits missed forecasts for a 1 percent gain and was the smallest increase in six years. The report helped ease worries that inflation is increasing fast enough to compel the Fed to aggressively hike interest rates.

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

Meanwhile, consumer spending and personal income posted stronger-than-expected gains in March, according to the Commerce Department.

Personal income increased 0.5 percent from a revised 0.4 rise in February, versus Briefing.com's forecast for a 0.4 percent gain.

Consumer spending gained 0.6 percent, following a revised 0.7 percent increase in February. Economists had forecast a 0.4 percent rise in spending.

"Although real consumer spending was strong it has slowed for two consecutive quarters and finished Q1 with very little momentum," Steven Wood, a chief economist at Insight Economics told Reuters. "In order to sustain recent strength in real consumer spending, job creation will need to accelerate further."

The University of Michigan also released their March consumer confidence report, which dropped to 87.7 from 92.60. Increases in consumer sentiment is typically viewed as a precursor to strong economic growth.

With this week's sluggish economic figures, which included a report that gross domestic product fell to its lowest level in two years, it is expected that the Federal Reserve Bank will recommend a quarter percentage point rate hike when it meets next Tuesday instead of a previously predicted half-point increase. Such a move would be the eighth hike since last June and would bring interest rates up to 3 percent.

While most traders will be eyeing the Fed, another wave of economic data is due out next week including factory orders for March and reports on chain store sales and employment for April.

In currency markets, the dollar fell against the euro and yen.

The euro bought $1.2873, down from $1.2893 late Thursday, while the dollar bought ¥104.72, down from ¥106.06 on the previous session.

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