UPDATE 1-China, Japan's U.S. Treasuries holdings fall further in September

* China sold most Treasuries in nearly two years in September

* Japan bought Treasuries despite further drop in holdings

* Foreigners continue to cut back on U.S. stock positions (Recasts lead, adds background)

NEW YORK, Nov 16 (Reuters) - China and Japan, the two biggest foreign U.S. creditors, cut their U.S. Treasury holdings further in September, as foreign appetite for Treasuries seemed to be waning due to growing government borrowing in the bond market, Treasury Department data released on Friday showed.

China remained the biggest holder of Treasuries with $1.151 trillion in September, which was the lowest amount since June 2017. The world’s No. 2 economy sold $18.51 billion in Treasuries, the most since October 2016.

Japan, the second biggest foreign U.S. creditor, saw its Treasuries holdings falling to $1.028 trillion, the lowest since October 2011.

On the other hand, Japan bought $16.07 billion in U.S. government debt in September, the highest amount since June 2017, Treasury data showed. The apparent discrepancy between Japan’s purchases and holdings of U.S. Treasuries stems from separate methods the Treasury uses to track these activities.

The U.S. government has ramped up its Treasury issuance on an expected increase in the federal deficit in the aftermath of the massive tax cut enacted last December and the federal spending deal passed in February.

Overall foreigners cut back their holdings of U.S. government debt in September after making their biggest monthly purchase of Treasuries since June 2015 the month before.

Overseas official and private investors in total sold $11.539 billion in Treasuries last month, compared with $63.13 billion they bought in August, the data showed.

Private official institutions sold $15.677 billion in Treasuries, while foreign private investors bought $3.827 billion in U.S. government bonds.

Foreigners sold U.S. stocks for a fifth straight month in September, reducing their equity holdings by $16.911 billion.

Meanwhile, they bought U.S. corporate bonds for an eighth consecutive month. They purchased $6.055 billion, following the $14.941 billion they bought in August.

Reporting by Richard Leong Editing by Leslie Adler and James Dalgleish