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UPDATE 1-US capital inflow rises, but long-term buys slide

Published 04/15/2011, 09:57 AM
Updated 04/15/2011, 10:00 AM

* Net overall U.S. inflows jumps, but long-term buys down

* Official demand tepid, private sector drives purchases (Adds detail, comment, byline)

By Steven C. Johnson

WASHINGTON, April 15 (Reuters) - Foreigners tripled overall purchases of U.S. securities in February, U.S. Treasury data showed on Friday, but some large U.S. creditors cut government bond holdings and demand for long-term assets slipped.

Including short-dated assets such as bills, the United States attracted a net inflow of $97.7 billion in February, from a downwardly revised $30.6 billion inflow in January.

Of that total, private investors took in a net $92.6 billion, nearly double their total for the prior month. The official sector, which includes foreign central banks, showed a net inflow of $5.1 billion. They were net sellers in January.

However, net purchases of long-term U.S. assets, excluding bills, moderated in Feburary to $26.9 billion, compared to a downwardly revised $51.1 billion the prior month. Overall net Treasury purchases fell to $30.6 billion from $46.4 billion.

That partly reflects less buying by foreign central banks, analysts said. Russia, for instance, trimmed Treasury holdings for a fourth straight month to $130.5 billion. China, the top foreign U.S. creditor, cut its huge stash by about $1 billion to $1.154 trillion, also a fourth straight monthly reduction.

Many export-led emerging market countries have amassed huge U.S. dollar reserves in recent years, much of which they have recycled into U.S. Treasuries. China this week reported its foreign exchange reseves hit a record above $3 trillion.

More recent data suggests many of those central banks have been trying to diversify their dollar-heavy holdings, which market anlaysts say may account for reduced inflows.

"The aggregate data and long-terminflows do not send an inspiring picture for the U.S. dollar," said Alan Ruskin, global head of currency strategy at Deutshe Bank.

Recent signs of stronger U.S. growth and worries about the country's fiscal deficit have pushed Treasury yields up in recent months and may have also gave soured some investors on longer-dated bonds.

Ruskin conceded that U.S. government revisions in January showing that China held nearly a third more in Treasury debt than initially reported makes it hard to draw definitive conclusiosn from the data.

Still, "none of the major components -- Treasuries, agencies, corporate and equities -- showed any inflow vigor," which suggests more dollar losses ahead.

The U.S. dollar has lost about 5.0 percent against a basket of major currencies so far this year and is also weaker against large emerging market currencies.

Overases buyers cut purchases of U.S. equities by $9.9 billion to $6.1 billion in February and were net sellers of corporate debt to the tune of $2.5 billion.

Japan, the second largest foreign U.S. creditor, increased Treasury holdings by $4.4 billion to $890.3 billion. But analysts say next month's data for March may show a change, as it will capture Japanese behavior after a devastating March 11 earthquake. Some in financial markets expected Japan might have to cut back on Treasury buying to pay for repairs.

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