NEW YORK (CNNfn) - A slide in the dollar helped pull down bond markets Friday before bargain hunters managed to lift prices off the day's lows in the afternoon.
The dollar, which started the day weaker but appeared headed for a rebound after a tame inflation report, slid against the German mark when speculation hit the market that the central bank of Greece was dumping dollars to buy its own currency, the drachma.
The Greek central bank sold as much as $500 million to buy drachmas, which were later used to purchase German marks, traders said. This, in turn, fueled speculation that Greece is about to devalue its currency, especially after it became known that Athens has asked the European Union to enter the drachma into Europe's Exchange Rate Mechanism. The entry, market players speculated, could only follow a devaluation of the drachma.
The dollar also ended weaker against the Japanese yen, pressured in part by more talk that Tokyo is working on a new, more aggressive stimulus package.
Bonds opened flat, eagerly awaiting the February Producer Price Index report. The market fell immediately after the report was released, as traders felt disappointed that inflation at the producer level fell only 0.1 percent last month, while many on Wall Street had expected a 0.2 percent decline.
But buyers were found at the lows and prices briefly bounced back, before being pulled down by the tumble in the dollar.
The price of the benchmark 30-year Treasury bond fell 12/32 of a point, raising the yield to 5.89 percent. 
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