NEW YORK (CNNMoney.com) - Treasury prices fell Tuesday as fresh housing data outweighed a report that showed inflation was under control at the wholesale level.

The dollar surged against the euro and the yen.

The benchmark 10-year note fell 5/32 to 110-08/32, yielding 4.46 percent, up from 4.44 percent late Monday. The 30-year bond lost 8/32 of a point to 110-16/32 to yield 4.66 percent, up from 4.64 in the previous session. Bond prices and yields move in opposite directions.

In shorter-dated debt, the two-year note fell one tick, to yield 4.41 percent. The five-year note was down 4/32, yielding 4.40 percent.

The Census Bureau reported Tuesday that housing starts rose to an annual rate of 2.12 million in November, from a revised 2.02 million in October. It was the third best month on record for housing starts, and followed a sharp drop seen in the October reading.

"Housing has been one of the strengths of the economy, and today's report was bond negative," Mary Ann Hurley, a bond trader with D.A. Davidson & Co. in Seattle told Reuters.

Producer prices, a measure of prices received by farms, factories and refineries, fell by a greater-than-expected 0.7 percent last month, the biggest drop in 2-1/2 years, according to the Labor Department.

The so-called core PPI, which strips out volatile costs such as energy to provide a better gauge of underlying inflation pressures, edged up 0.1 percent.

Wall Street expected overall producer prices to drop 0.5 percent, with the core index up 0.2 percent.

There is extra attention to inflation readings after the Federal Reserve said last week that future decisions on interest rate hikes would be based on data on prices and economic growth.

Inflation hurts bonds as it erodes the value of the fixed-income investment. However, rising interest rates generally help the dollar as they make dollar-denominated securities more attractive to foreign investors.

In currency trading, the dollar rallied, posting its second straight day of gains against the euro and yen.

The euro bought $1.11864, down from $1.2009 late Monday. The dollar bought ¥117.14, up from ¥116.16 in the previous session.

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