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By Pedro Nicolaci da Costa

NEW YORK, April 12 (Reuters) - U.S. Treasury prices fell on Monday, pushing yields to three-month highs as traders worried that a raft of data due this week would show the economic recovery remains on a solid footing.

Highest on investors' list of concerns are retail sales and inflation figures, expected to show that healthy consumer spending is starting to enhance companies' ability to charge higher prices for their goods.

"The market is being a bit defensive; they're expecting a strong retail sales number this week," said Sharon Stark, chief fixed income market strategist for Legg Mason.

"People have also come to the realization that there is a greater chance of higher inflation than deflation at this point," she added.

The benchmark 10-year note <US10YT=RR> dropped 10/32 in price, taking yields to 4.23 percent from 4.19 percent on Thursday. Earlier, yields hit a three-month high of 4.25 percent.

This time last month, yields were down around 3.67 percent but sped higher once strong March payrolls data forced the market to price in a greater risk of Fed rate hikes.

Two-year notes were off 2/32 while their yield <US2YT=RR> rose to 1.89 percent from 1.86 percent. Prices of five-year notes were down 6/32, with yields <US5YT=RR> climbing to 3.26 percent from 3.21 percent last Thursday, before the Good Friday holiday.

The 30-year bond <US30YT=RR> lost 18/32, lifting its yield to 5.06 percent from 5.03 percent.

Inflation has returned as a major concern now that jobs seem to be reviving and rising commodity prices have grabbed media headlines, making the March consumer price index on Wednesday this week's focus.

In particular, the core measure, which excludes food and energy costs, looks to have bottomed in the last few months and could tick higher to around 1.3 percent in annual terms from 1.2 percent in February.

That would take it further away from the Fed's danger zone under 1.0 percent and, presumably, make it easier for the central bank to consider raising interest rates.

That prospect was aired by Fed Bank of San Francisco President Robert Parry in an interview in the San Francisco Chronicle on Sunday.

"Let's assume inflation averages 1 to 2 percent. Then you could see maybe the natural funds rate would be -- I don't know -- 3.5 percent, something like that," Parry told the newspaper.

That was a surprise to some analysts since inflation, by most measures, is already running between 1.0 percent and 2.0 percent but interest rates are still down at 1.0 percent.

"Parry's comments hint that the Fed still views the neutral level of the federal-funds rate to be approximately two percentage points above the inflation rate," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co.

This was important, he said, because many in the market had been speculating that recent low inflation readings might compel the Fed to lower the level it considers to be neutral -- that which neither stimulates nor restrains the economy.

Parry is not a voting member on the Fed's Open Market Committee and is to retire in June.

A taste of what might be in store on the data front came on Monday from the Federal Reserve Bank of Kansas index of manufacturing, which leaped to 27 in March from 14 in February.

The measure is not closely followed by the market but the sheer scale of the rise was enough to ring alarm bells for bond bulls.

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