2011-03-02 17:04

SINGAPORE - China, the largest creditor of the United States, increased its holdings of US debt to a record $1.175 trillion in October, according to revised data issued by the Treasury.

The Asian nation's investment totaled $1.16 trillion at year-end, the Treasury Department reported on Monday, raising the figure from the previous $891.6 billion. Japan maintained its place as second-largest lender to the US, with $882 billion of Treasuries at the year-end, compared with $884 billion before the revision.

China's Treasury holdings underscore the government's confidence in President Barack Obama's stewardship of the US economy. Overseas investors own about half of the record $8.96 trillion in US publicly traded debt, and Obama needs them to keep buying as he borrows to sustain the expansion.

"They will keep on buying Treasury bonds," said Kazuaki Oh'e, a debt salesman in Tokyo at CIBC World Markets Japan Inc, a unit of Canada's fifth-largest bank. "The euro was in trouble last year. They need to buy dollar assets."

The United Kingdom's investment was revised down to $272.1 billion from $541.3 billion. It kept its place as the third-largest lender to the US.

China buys Treasuries with the dollars it takes in by selling yuan to keep its currency from strengthening, and with the funds it earns from exports.

Chinese President Hu Jintao told business executives in Washington in January that closer ties between his country and the US were critical amid a "tortuous" global economic recovery.

The Asian nation's Treasury holdings climbed amid a bond-market rally. US debt gained from April through September before handing investors a loss in the fourth quarter of last year. The euro tumbled to a four-year low against the dollar in June as governments arranged a bailout fund to rescue the region's most indebted nations.

Chinese officials had been saying they wanted to seek investments outside the US.

The government should consider investing in energy, resources, high-tech and agriculture, Jesse Wang, the executive vice-president of China Investment Corp, the nation's $300 billion sovereign wealth fund, said on Jan 15.

China's yuan rose toward a 17-year high on Tuesday on speculation policymakers will permit gains to curb inflation.

The currency strengthened for a third day after the Financial News reported Liu Mingkang, chairman of the China Banking Regulatory Commission, as saying the yuan had entered a period of "only appreciation."

China, the world's largest exporter, had a trade surplus of $183 billion in 2010.

Treasuries have handed investors a loss of 0.1 percent this year, following a 5.9 percent gain in 2010, based on Bank of America Merrill Lynch data.

Bloomberg News