NEW YORK (CNN/Money) - Bonds posted slight gains Monday after a manufacturing report came in below estimates, but failed to rally after the report showed continued high prices and traders braced for the Federal Reserve meeting Tuesday.

The dollar made solid gains on the yen and was little changed against the euro.

The benchmark 10-year note added 3/32 of a point to 98-14/32 to yield 4.19 percent, down from 4.20 percent late Friday. The 30-year bond remained unchanged at 113 points even to yield 4.52 percent. Bond prices and yields move in opposite directions.

The five-year added two points to 100-17/32 to yield 3.88 percent, while the two year edged up 1/32 to 99-31/32, yielding 3.64 percent.

The Institute of Supply Management's manufacturing index came in with a 53.3 reading for April, down from a 55.2 reading in March. Economists surveyed by Briefing.com had forecast the closely watched index would come in at 55.

But a component of the report which measures prices declined slightly, but still remained high.

"The prices paid is still way up there, inflation is still running a little hot, enough that the Fed will continue to raise interest rates," Mark Vitner, senior economist at Wachovia Securities, told Reuters.

The Fed is meeting Tuesday and is widely expected to raise the short-term interest rate a quarter of a point from 2.75 percent to three percent to combat creeping inflation.

Although the hike is expected, traders will be closely watching the Fed's statement after the meeting, looking for any signs the monetary policy committee is fearful of faster inflation and may increase future rate hikes, notably by removing the word "measured" in how it describes its pace of rate increases.

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

Trade was thin with London markets closed for a public holiday and Japan starting its Golden Week holiday season.

In currency markets, the dollar rose against the euro and yen, recovering from last week's six-week low versus the Japanese currency.

The euro bought $1.2863, down slightly from $1.2867 late Friday, while the dollar bought ¥105.03, up from ¥104.72 the previous session.

Analysts said the yen weakened following reports that North Korea may have test-fired a short-range missile into the Sea of Japan, and as speculation waned that China would revalue the yuan.

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