UPDATE 1-China extends Japanese debt buying streak in July

(Adds details on China's Japanese debt buying in 2010)

TOKYO, Sept 8 (Reuters) - China bought a net 640.8 billion yen ($7.65 billion) in short-term Japanese bills in July, extending a record buying spree of Japanese debt seen since the started of the year.

The recent surge in Japanese bond investment by Chinese investors has stirred talk that China may be diversifying its foreign reserves into the yen and away from the euro and the dollar.

In contrast to their net buying of short-term Japanese debt, Chinese investors were net sellers of medium- to long-term Japanese bonds to the tune of 57.7 billion yen in July, data from Japan's Ministry of Finance showed on Wednesday.

Due to a marked pick-up in Chinese buying of short-term Japanese bills this year and especially since May, when sovereign debt concerns buffeted the euro, China's total net buying of Japanese debt has surged to roughly 2.3 trillion yen so far in 2010, a record pace in data going back to 2005.

That is well above the previous annual record for Chinese net buying of Japanese debt, at 255.7 billion yen, recorded in 2005. ($1=83.78 Yen) (Reporting by Masayuki Kitano; Editing by Edmund Klamann)