U.S. foreign investment gap hits record $4 trillion

WASHINGTON (Reuters) - The value of U.S. assets held by foreigners exceeded that of overseas holdings in the United States by the most ever in 2011 as U.S. government bonds rallied on central bank buying.

The U.S. net investment position declined last year by $1.56 trillion, the biggest ever one-year drop, to a negative $4.03 trillion, the largest shortfall on record, the Commerce Department said on Tuesday.

America's negative investment position, in place since 1986, reflects the debtor nation's need to fund a large current account deficit, which hit its widest point since late 2008 in the first quarter of this year.

Contributing to last year's contraction was a rally in U.S. Treasury bonds, which benefited from safe-haven flows as Europe's debt crisis simmered, as well as central bank buying both at home and abroad. The safe-haven rally has continued into this year

The Federal Reserve has been buying long-term U.S. Treasuries to keep borrowing costs low, while foreign central banks have loaded up on them to offset some of the currency appreciation that comes from a heavy inflow of dollars into their economies.

(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)