UPDATE 2-China cuts US Treasury holdings as complaints build

(Recasts throughout; adds details)

By Steven C. Johnson

NEW YORK, Feb 16 (BestGrowthStock) – China fell behind Japan to
become the second-biggest holder of U.S. Treasuries in a sign
the Chinese have been acting on recent complaints about U.S
policy by unloading U.S. debt.

As one of the biggest creditors of the United States, China
has complained over the past year about U.S. policies and
worried publicly about the security of its dollar-denominated
assets.

China sold more than $34 billion in short- and long-dated
Treasuries in December, bringing its total holdings down to
$755.4 billion from $789.6 billion in November, according to
U.S. Treasury data released on Tuesday.

Some analysts fear a waning appetite for U.S. debt could
push up Treasury yields and weaken a fragile U.S. recovery.

“Net-net this data is only going to add to second guessing
of Chinese behavior and raise concerns that they are not
showing much enthusiasm for U.S. dollar-denominated paper,”
said Alan Ruskin, chief international strategist at RBS
Securities in Greenwich, Connecticut.

Ties between China and the United States have been tested
several times recently on issues including currency, trade,
Internet censorship, human rights and U.S. arms sales to
Taiwan. For a timeline see [ID:nNSGE61305]

Japan, by adding $11.5 billion, raised its total holdings
to $768.8 billion, surpassing China for the first time since
August 2008.
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For a graphic of China and Japan Treasury holdings
seehttp://graphics.thomsonreuters.com/0210/US_TICS0210.gif
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Ruskin said China has sold some $45 billion in Treasury
debt over the past five months, calling it “a long enough
period to hint strongly at a trend.

Still, the data showed the United States attracted overall
net inflows of $60.9 billion. Treasuries of all maturities saw
a net inflow of $69.9 billion, and net inflows into stocks rose
to $20.1 billion from $9.6 billion in November. But U.S.
corporate debt suffered a net outflow.

In addition to Japan, strong Treasury buying was also seen
from Britain, Luxembourg and Hong Kong, the data showed.

Win Thin, a currency strategist at Brown Brothers Harriman
in New York, called the data “a cause for modest concern that
bears watching,” but added, “we do not think the big global
reserve managers are dumping U.S. dollar assets on a sustained
basis.”

He said euro assets are not an attractive alternative with
markets worried that Greece may not be able to make the
spending cuts necessary to get its swollen debt under control.

European Union ministers have offered Greece a pledge of
support but stressed that Athens may need to commit to even
more drastic spending and wage cuts.

SHIFTING INTO THE LONG END

Net inflows into long-term securities totaled $63.3
billion, down from November’s $126.4 billion, the data showed.

Meanwhile, net outflows from Treasury bills hit a record
$53 billion, with China leading much of the selling, Ruskin
said.

But the shift into the long end of the curve may reflect
more confidence in the U.S. economy as foreigners cut
safe-haven purchases of bills.

Also, U.S. Treasury officials said earlier this month that
they ended December “with an avalanche of cash,” primarily from
repayment of Troubled Asset Relief Program funds by banks such
as Citigroup (C.N: ), Bank of America (BAC.N: ) and Wells Fargo &
Co. (WFC.N: ).

Much of this was used to pay down Treasury bills as the
government tried to stay under the debt limit and shifted more
of its borrowing to longer-dated coupons.

Stock Analysis

(Additional reporting by David Lawder in Washington;
Editing by Chizu Nomiyama)

UPDATE 2-China cuts US Treasury holdings as complaints build