Foreign demand for US financial assets down in May

Foreign demand for long-term US financial assets fell sharply in May, but China bought more

WASHINGTON (AP) -- Foreign demand for long-term U.S. financial assets dropped by the largest amount in four months in May, as Japan and Russia trimmed their holdings of Treasury securities.

The Treasury Department said Thursday that foreigners actually sold $19.8 billion more long-term U.S. securities than they purchased in May. That compared with net purchases of $11.5 billion in April.

China, the largest foreign holder of U.S. Treasury securities, bucked that trend. Its holdings rose to $801.5 billion, an increase of 5 percent from $763.5 billion in April.

China's holdings are a direct result of the huge trade deficits the U.S. runs with the emerging Asian power. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities.

American manufacturers argue that gives China unfair trade advantages by keeping the dollar overvalued against the Chinese currency, which makes U.S. goods more expensive for Chinese consumers and Chinese products cheaper here.

Both the Bush and Obama administrations have argued that China should allow its currency to rise faster in value against the dollar but the yuan has stopped appreciating against the dollar in recent months.

Foreigners last sold more long-term U.S. securities than they purchased, $36.8 billion worth, in January.

Japan, the second largest foreign owner of Treasury securities, trimmed its holdings 1.3 percent to $677.2 billion in May, from $685.9 billion in April.

Russia cut holdings even more sharply, reducing them 9.1 percent to $124.5 billion in May from April.

Oil exporting countries, another large holder of Treasury securities, boosted their holdings by 1.8 percent to $192.9 billion.

Treasury Secretary Timothy Geithner traveled to Saudi Arabia and the United Arab Emirates this week to assure those governments that the administration is committed to getting its soaring budget deficits under control once the current recession and financial crisis have been contained. Geithner delivered a similar message to the Chinese in a trip to Beijing a month ago.

In Paris on Thursday, his last stop before returning to Washington, Geithner said financial leaders need to avoid the mistakes the U.S. made during the Great Depression when the government stopped providing economic stimulus before a sustained recovery was under way.

"Probably why I'm doing this (tour) is to make sure we keep working with governments around the world to continue to provide enough support to lift this global economy back to a sustained pattern of growth," he told reporters in Paris.