NEW YORK (CNNMoney.com) - Treasury prices turned around Tuesday afternoon after traders shrugged off two economic reports indicating economic strength and the possibility of future interest-rate hikes.

The dollar strengthened against the euro and yen.

The benchmark 10-year note rose 5/32 to 101-10/32, yielding 4.33 percent, down from 4.35 on Friday. The 30-year bond gained 5/32 to 112-26/32 to yield 4.51 percent, down from 4.53 the previous session. Bond prices and yields move in opposite directions.

The two-year note was flat, yielding 4.33 percent, while the five-year note added one tick, yielding 4.27 percent.

Bond markets were closed Monday for Martin Luther King, Jr. Day.

Treasury prices were lower earlier in the session after two key economic reports showed strength in manufacturing and suggested inflationary pressures that might be worthy of the Federal Reserve's attention.

But some traders said they were not fully convinced the most recent data changed the interest rate outlook.

"The market is anticipating a slowing economy," Alan De Rose, a bond trader at CIBC World Markets in New York, told Reuters, explaining why prices began to reverse in the session.

In the week's first economic reports, output from U.S. factories, mines and utilities rose a solid 0.6 percent in December, a Federal Reserve report showed Tuesday. The reading outpaced economists' expectations of a climb of 0.5 percent in December output.

And in a sign of a manufacturing rebound, closely watched business capacity use increased to 80.7 percent, a level last attained in November 2000. Analysts had expected capacity utilization to rise to 80.5 percent.

Investors anticipate the Fed, which has boosted interest rates to 4.25 percent from 1.00 percent over the last 18 months, will raise official short-term rates by a quarter-point at its first policy meeting of the year on Jan. 31. But they are less sure about what to expect after that.

Looking ahead, investors will be closely watching Consumer Price Index figures and the Federal Reserve's "Beige Book" summary of economic conditions, both of which are due out Wednesday.

In currency trading, the dollar strengthened against the euro and the yen.

The euro bought $1.2104, down from $1.2136 late Friday in New York. The dollar bought ¥115.46, up from ¥114.26 the previous session.

-- from staff and wire reports

__________________

For updated bond charts, click here.