U.S. net capital outflows slow in February

NEW YORK (Reuters) - Net capital outflows from the United States slowed in February from a record outflow the previous month, boosted by buying in U.S. Treasury, agency, and corporate bonds, Treasury Department data released on Wednesday showed.

Foreign investors sold U.S. securities totaling $97 billion in February, down from sales of $146.8 billion in January, originally reported at $148.9 billion.

However, net long-term capital flows, a key gauge of foreign investor appetite because they exclude short-term transactions, showed an inflow of $22 billion in February, compared with revised outflows of $36.8 billion in January.

January's figure was initially reported by the Treasury as an outflow of $43.0 billion.

"Given that the U.S. current account deficit has narrowed substantially, there doesn't seem to be as dire a need for external financing," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York.

"Overall, the report, although a little stale, is an encouraging sign for the dollar, especially when we look at the long-term inflow. It shows there is still healthy demand for U.S. assets and also, we all know that the dollar drew risk aversion bids in February."

The ICE Futures dollar index rose 2.7 percent in February but showed little reaction to the capital flows data.

Private foreign investors continued to shun U.S. assets, selling $106.3 billion in February, although that was markedly lower than the $156.0 billion in securities sold in January.

U.S. Treasury buying rose to $21.6 billion, from buying of $10.7 billion in January.

China, the largest holder of U.S. Treasury securities, increased its holdings of government bonds further in February. It held $744.2 billion, up from $739.6 billion in January.

Japan, the second-largest holder, raised its total to $661.9 billion from $634.8 billion the previous month.

Corporate bonds saw inflows of $3.3 billion after an outflow of $8.3 billion in January.

Analysts said corporate bond buying could be due to cheap valuations given that a lot of these securities have come down because of the sell-off in equities and tightness in credit.

Foreign investors also bought $1.1 billion in U.S. agencies in February, recovering from outflows of $15.5 billion in January.

But investors sold U.S. stocks totaling $5.1 billion, after purchases of $1.4 billion in January.

(Editing by James Dalgleish)