NEW YORK (CNN/Money) - Bond prices climbed Tuesday on an economic warning from Fed head Greenspan and news that foreign central banks are still snapping up Treasuries, while the dollar gained on the impressive flow of capital into U.S. assets.

The 10-year bond rose 5/32 of a point higher to 98-06/32 to yield 4.47 percent, down from 4.49 late Monday. The 30-year bond rose 8/32 of a point to 109-30/32 to yield 4.69 percent, down from 4.71 in the previous session. Bond prices and yields move in opposite directions.

In shorter-dated debt, the five-year note rose 4/32 of a point to yield 4.33 percent, while the two-year note was up two ticks to yield 4.24 percent.

Federal Reserve Chairman Alan Greenspan told Japanese business leaders that higher energy costs would serve as a global economic drag.

"The recent surge in energy prices will undoubtedly be a drag from now on," he said.

But he went on to say that the impact would not be as great as it was in the 1970s. Even so, the added that long-term oil futures reflect supply concerns and that world refining capacity has become worrisome.

The comments were a break from the past few weeks of statements from various Fed members saying that it is more important to raise interest rates and fight oil price-related inflation than to worry about the effects higher energy prices have had on economic growth.

While few analysts believe the comments made in Japan are evidence that the Fed will pause its monetary tightening campaign, it gave bonds a break from a six-week sell off that began soon after Hurricane Katrina hit the Gulf Coast and the Fed chose inflation fighting over a pause in interest rate hikes.

Bonds did post a mild dip after the Labor Department delivered its monthly Producer Price Index (PPI) report, which climbed 1.9 percent in September, its biggest jump in 15 years and above Wall Street's estimates for a 1.4 percent rise. Core PPI, which strips out food and energy prices, rose 0.3 percent, slightly above expectations.

Bond investors fear inflation since it erodes the value of the fixed-income investment, and it increases the risk of loaning out money to the government for longer periods of time.

The Treasury Department also said that net flows of capital into U.S. assets swelled to $91.3 billion in August, the largest in 16 months, while net foreign buying of Treasuries fell, but only slightly, to $28.1 billion in August from $28.5 billion in July.

The purchase of Treasuries by foreign central banks has helped sustain a longer-dated debt rally over the past year, allowing the yield on the 10-year note to remain low despite 14 months of short-term interest rate hikes.

Moreover, the news that foreign banks are buying dollar-denominated assets boosted the dollar.

In currency trading, the dollar rose against the euro and yen with the dollar buying ¥115.66, up from ¥114.92 late Monday, and the euro buying $1.1961, down from $1.2027 the previous session.

--from staff and wire reports

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