US Treasury: China trims $5.8 billion debt in Jan

<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />China retained its spot as the biggest foreign holder of U.S. Treasury debt in January even as it trimmed its holdings for a third straight month. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

The string of declines underscored worries that the U.S. government could face much higher interest rates to finance soaring budget deficits, the Associated Press reported Monday.

The U.S. Treasury Department said Monday that China's holdings dipped by $5.8 billion to $889 billion in January compared with December. Japan, the second-largest foreign holder of U.S. government debt, also trimmed its holdings but by $300 million, to $765.4 billion.

Net foreign purchases of long-term securities, a category that includes both government and corporate debt, totaled $19.1 billion in January, as net purchases of private corporate bonds fell by $24.8 billion, the biggest drop on record.

A month ago, Treasury initially reported that China had cut its holdings so sharply that it had lost its top spot as America's largest foreign creditor. However, 10 days later, Treasury released its annual update of the figures. The revised data showed that China, while reducing its holdings, still retained the top spot. Treasury revises the data based on more detailed readings of the statistics, which do a better job of sorting out actual ownership of the bonds.

This review determined, for example, that some bonds credited to Britain because they were purchased there were actually purchased on behalf of Chinese investors.