Foreign capital flowed heavily into U.S. assets in February, suggesting the trade deficit was well-financed for now, but a six-month low on a gauge of manufacturing activity in New York state sparked concerns about near-term economic strength.

Geopolitical tensions struck energy markets, pushing oil prices above $70 a barrel for the first time in nearly eight months and less than a dollar away from record highs.

Higher oil prices mean consumers have less money to spend or invest and can dent economic growth.

However, foreign investors poured a net $86.9 billion into U.S. financial assets in February compared with an upwardly revised $69.1 billion in January, according to a report from the Treasury Department. Economists had expected a moderation in net inflows to $62.8 billion in February.

The upswing showed the attraction of high U.S. interest rates relative to other major economies was still strong.

The larger-than-expected portfolio flows soothed concerns over the large U.S. trade deficit of $65.7 billion in February, although the data were more than two months old.

The most important thing is that U.S. interest rates are still higher than rates in other reserve currency economies and because of that, there's an advantage to investing here, said Chris Low, chief economist with FTN Financial.

I wouldn't be surprised if there was a pullback in March, he added.

Treasuries rallied as oil prices climbed and a New York state manufacturing report was sharply weaker than expected.

The dollar recouped some earlier losses after the asset flows report but was still at two-week lows against the euro on a growing view the Federal Reserve may be nearing the end of its nearly two-year-long campaign to raise interest rates.

Investors will be watching March U.S. inflation data this week for indications on whether wholesale and consumer prices are responding to the Fed's efforts to ward off inflation.

The New York Fed's measure of manufacturing activity slumped to 15.81 in April from a downwardly revised 29.03 in March and far short of economists' median forecast of 24.50.

The prices paid component held relatively steady, slipping to 37.90 from 39.32 in March.

Demand is growing moderately, said Steven Wood, an economist with Insight Economics in Danville, Calif. In addition, backlogs are growing, inventories are low and manufacturers are hiring, he said.

U.S. Manufacturing