UPDATE 4-U.S. suffers net capital outflow in January

Mon Mar 15, 2010 12:15pm EDT

* Overseas investors net sellers of all U.S. assets

* Official investors biggest sellers

* Long-term securities still attract net inflow

* China remains top holder of U.S. Treasury debt (Adds detail on China)

By Steven C. Johnson

NEW YORK, March 15 (Reuters) - Foreign investors, led by central banks, were net sellers of all U.S. securities in January but continued to buy U.S. Treasuries, the Treasury Department said on Monday.

China remained the largest single holder of U.S. government debt, with $889 billion in hand in January, down from $894.8 billion in December. Japan was second with $765.4 billion compared with $765.7 billion the prior month.

Net outflows from all U.S. securities, including short-term instruments such as Treasury bills, totaled $33.4 billion in January, reversing a $53.6 billion inflow seen in December.

Official investors -- primarily central banks worldwide -- were the biggest sellers, unloading a record net $34.1 billion, the most since they sold $26.3 billion in September 1998 following financial crises in Asia and Russia.

Long-term securities saw a net inflow of $19.1 billion, though that was below December's $63.3 billion tally.

Overseas investors were net buyers of Treasuries to the tune of $61.4 billion, down from $69.9 billion in December, but official investors sold a net $4.2 billion.

"Private sector purchasers have continued to buy U.S. Treasuries. However, it is foreign governments who have temporarily stopped buying in January," said Michael Woolfolk, strategist at BNY Mellon in New York.

CHINA'S APPETITE FOR TREASURIES

In January, investors favored long-dated Treasuries over short-dated ones, with net outflows from Treasury bills seen among private and official investors.

China's short-term holdings fell by $12 billion, but it purchased $6.25 billion in longer-dated U.S. government debt.

"Our take on this is that China (and many other countries) loaded up on the short end during the crisis," said Win Thin, strategist at Brown Brothers Harriman in New York. "Now that the crisis has eased, these holders are simply letting these short-end holdings mature and then extending out the curve."

China buys dollar-denominated Treasuries to control the value of its yuan currency against the dollar. Washington has long pressed China to let the yuan appreciate, and a group of 130 U.S. lawmakers on Monday urged the White House to address China's "currency manipulation." [ID:nN15247203]

A stronger yuan would free China to accumulate fewer U.S. assets, but Chinese Premier Wen Jiabao rejected such pressure on Sunday and said the yuan is not undervalued. [ID:nTOE62D001]

China has complained over the past year about U.S. policies and worried publicly about the security of its dollar assets.

But data released last month that suggested China was shedding Treasuries and had fallen behind Japan as the largest single holder of U.S. government debt was subsequently revised, showing instead that China remained the top U.S. creditor.

Treasury said the benchmark revisions took into account additional transactions that had not been captured in the initial data for December.

EQUITY, CORPORATE DEBT OUTFLOWS

The January data also showed overseas investors cut equity purchases to a net $4.3 billion from $20.1 billion in December.

They were also heavy sellers of U.S. corporate debt, unloading a net $24.6 billion in January, up from an outflow of $7.9 billion in December. This time, though, private sellers led the selling, shedding a record $24.8 billion and beating the previous record of $15.3 billion in November 2008.

Treasury records on foreign security transactions date back to the mid-1930s. (Editing by Andrea Ricci)