"If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant", says Craig Erlam, senior market strategist at OANDA, a currency trading firm with offices in NY.
Oil prices extended gains, with US crude futures hitting a three-year high on a tight supply balance due to OPEC-led production cuts and a sharper fall in USA crude inventories. But a Bloomberg report on Wednesday suggested that China may be reviewing its vast holdings, sending Treasury yields to 10-month highs. China resumed buying previous year. However, Innes said the uncertainty over China's stance could potentially dampen investors' risk appetite, while the dollar would likely face headwinds against the yen due to speculation about the Bank of Japan's future exit from its massive stimulus policy.
Interest rates had already been rising to start 2018, as investors begin to price in prospects for faster USA growth, more interest rate hikes from the Federal Reserve and rising inflation pressures, in part due to rising wages as the job market tightens further.
Treasury prices fell, boosting yields.
Analysts also said rising oil prices could have sparked the rise in long-term yields this week, as it could fan inflation further down the road and force central banks to quicken the pace of interest rate rises. It earlier rose to 2.597 percent, the highest since March 15.
Since late November US stocks of crude have fallen by around 37.5 million barrels, which has supported prices.
The dollar index had its biggest single-day drop against the Japanese yen in almost eight months.
China's State Administration of Foreign Exchange did not immediately respond to a faxed request for comment on the Bloomberg report.
"Japanese [bond] yields have been rising and this has been reinforcing the move on the yen", Thu Lan Nguyen, a Frankfurt-based FX strategist at Commerzbank.
Benchmark 10-year notes last fell 10/32 in price to yield 2.5825 percent, from 2.546 percent late on Tuesday. It closed the day up 0.2 percent at 7,748.51.
European shares fell, with most sectors except financials in the red as concerns grew over the direction of the bond market.
The pan-European FTSEurofirst 300 index lost 0.46 percent and MSCI's gauge of stocks across the globe shed 0.11 percent.
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Shanghai finished up 0.2 percent, a ninth straight advance, but Tokyo ended 0.3 percent down.
Against a basket of six major currencies, the dollar inched up 0.1 per cent to 92.386, having regained some footing after falling to as low as 91.922 on Wednesday.