NEW YORK (AP) _ Bond prices turned sharply lower and interest rates rose in early trading today, reflecting an increase in the federal funds rate and a weak dollar on overseas markets.

The Treasury's bellwether 30-year issue fell about 3/4 point, or $7.50 per $1,000 face amount, while its yield rose to 7.64 percent, up from 7.57 percent late Friday.

The credit markets were closed on Monday in observance of Washington's Birthday.

Analysts attributed today's market decline to the federal funds rate and the dollar.

The federal funds rate, the interest charged on overnight loans between banks, was trading at 69-16 percent by midday, up from 61-16 percent late Friday.

The rate is often closely watched by traders as an indication of the Federal Reserve's credit policies. As the rate rises, investors worry that that may signal the Fed's desire to tighten its policies, thereby increasing interest rates. Bond prices and interest rates move inversely.

Last year, the Fed helped to push rates sharply lower in attempts to stimulate the economy.

Fed Chairman Paul Volker is expected to discuss the Fed's policies for 1987 when he testifies at a Senate Banking Committee hearing Thursday.

Meanwhile today, the dollar drifted lower against all major currencies in Europe and Tokyo. When the dollar falls, investors worry that dollar-denomina ted securities, such as bonds and notes, could become less attrqctive to foreign investors.

In the secondary market for Treasury bonds, prices of short-term maturities were off 3-16 point, intermediate maturities ranged from 7-32 point to 1/2 point lower while 20-year issues were down 3/4 point, according to the investment firm of Salomon Brothers Inc.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The Merrill Lynch Daily Treasury Index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was down 0.11 to 117.90.

In corporate trading, industrials were down 3/8 point and utilities 1/4 point lower in light dealings, Salomon Brothers said.

Among tax-exempt municipal bonds, general obligations and dollar bonds fell 3/8 point, Salomon Brothers said. Trading was light.

Yields on three-month Treasury bills rose 13 basis points to 5.77 percent. Six-month bills rose 7 basis points to 5.73 percent and one-year bills were up 5 basis points at 5.75 percent.

A basis point is one-hundredth of a percentage point.