Foreign demand for long-term U.S. financial assets slowed in October and China's holdings of U.S. Treasury securities were unchanged.
Continued strong demand for U.S. debt is critical to financing America's soaring budget deficits and keeping domestic interest rates low enough to support a broad economic recovery.
Foreigners purchased $20.7 billion more in assets than they sold in October, down from a $40.7 billion increase in September, the Treasury Department said Tuesday.
China, the largest holder of U.S. Treasury securities, maintained its holdings at $798.9 billion in October.
China's foreign holdings of Treasury securities are a direct result of the huge trade deficits the U.S. runs with China. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities and other dollar-denominated assets.
American manufacturers argue that the huge dollar reserves China is building up reflect a strategy by the Chinese government to keep its currency artificially low against the dollar.
On a visit to China last month, President Barack Obama urged the Chinese government to allow its currency to rise in value against the dollar while Chinese officials continued to express concerns about the soaring U.S. budget deficit. The U.S. deficit hit an all-time high of $1.42 trillion for the 2009 budget year, and the administration is projecting it will climb even higher to $1.5 trillion in the current budget year.
The administration has said it is important to spend heavily to attack high unemployment and make sure the economic recovery strengthens. But officials have indicated that Obama will make deficit reduction a key priority once the recovery has gained momentum.
Japan, the second largest holder of Treasury securities, had a total of $746.5 billion in October, down slightly from September's $751.5 billion.
The Treasury securities held by the United Kingdom dropped to $230.7 billion, from $249.3 billion, while the holdings of Hong Kong rose to $142 billion, from $132.2 billion.
Treasury securities held by oil exporting countries totaled $188.4 billion, up slightly from $185.3 billion in September. Russia's holdings totaled $122.5 billion, little changed from September's $121.8 billion.