By Min Zeng Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Treasurys fell Tuesday, reversing Monday's gains, as an unexpected rise in housing starts eased demand for relatively safe assets. The bond market posted losses even as riskier assets such as stocks and crude oil weakened after China surprisingly increased key interest rates. China raised its benchmark lending and deposit rates for the first time since 2007. While the move was aimed at tackling rising inflation, many investors are worried it will curb economic growth in the world's second-largest economy and one of the key engines for global economic growth. Some traders noted that the decline in Treasurys signaled that some investors cashed out of the recent rally as the market has priced in a lot about the Federal Reserve stepping up government-debt purchases at its monetary-policy meeting in early November. The recent mixed data had pushed some investors to cut bets on a shock-and-awe approach from the Fed to buy government bonds aimed at pushing down long-term interest rates for households and companies. The benchmark 10-year note's yield touched 2.592% Friday, its highest level since Sept. 30. "While no one is going to fight the Fed, the big question is how much of a purchase they may announce. Add to that nominally positive data, and that set the tone for selling in the bond market" said Christian Cooper, head of U.S. dollar derivatives trading at Jefferies & Co. in New York. As of 8:53 a.m. EDT, the price of the benchmark 10-year note was 8/32 lower for a yield of 2.545% and the 30-year bond was 13/32 lower to yield 3.984%. Bond prices move inversely to yields. U.S. housing starts increased 0.3% in September to a seasonally adjusted annual rate of 610,000, the Commerce Department said Tuesday. Building permits, an indicator of future construction, fell 5.6% to a seasonally adjusted annual rate of 539,000. Economists surveyed by Dow Jones Newswires expected overall housing starts to fall 4.2% to 573,000, largely because a weak job market has kept many would-be buyers on the sidelines. Economists had forecast a 1.2% rise in permits. The 10-year yield, a benchmark for consumer and corporate borrowings, hit 2.332% on Oct. 8, the lowest level since January 2009. -By Min Zeng, Dow Jones Newswires; 212-416-2229; min.zeng@dowjones.com

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