NEW YORK (CNNMoney.com) - Bond prices fell sharply Monday morning, lifting the yield on the benchmark 10-year note to its highest level in nearly four years, but Treasuries pared their losses as the session winded down.

The 10-year Treasury note fell 6/32 to 97-2/32 to yield 4.87 percent, up from 4.86 percent late Friday. Earlier in the session the yield touched 4.905 percent, the highest since June 2002.

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The 30-year bond dipped 4/32 to 93-22/32 to yield 4.90, little changed from the previous session. Bond prices and yields move in opposite directions.

The five-year note slipped 5/32 to yield 4.84 percent. The two-year note lost two ticks to yield 4.85 percent.

Treasuries fell sharply in the early going, sending the benchmark yield close to the key 5 percent level.

"Strengthening economies in Japan and Europe, combined with the threat of further rate hikes from the Federal Reserve has investors anticipating higher rates and acting defensively," William O'Donnell, a strategist at UBS, told Reuters.

Treasuries sold off last week after the Fed raised its key short-term interest rate to 4.75 percent and left the door open for another hike in May.

The European Central bank also has been hiking its key short-term interest rate, and Japan has hinted that it may soon be ready to raise rates from near zero.

Higher interest rates hurt existing holders of bonds because rising rates erode the value of their fixed-interest paying investments.

Investors took in mixed readings on the economy Monday.

The Institute for Supply Management's March manufacturing index fell to 55.2 from 56.7 percent in February. Economists surveyed by Briefing.com had expected the index to rise to 57.7.

The Commerce Department issued its monthly report on construction spending, which showed spending rose 0.8 percent in February, exceeding the 0.5 percent gain analysts had forecast.

In currency trading, the dollar fell. The euro bought $1.2143, up from $1.2121 late Friday, while the dollar bought ¥117.69, down from ¥117.72 in the previous session.

-- from staff and wire reports.

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