Foreign Buying of U.S. Assets Falls to $53.4 Billion

By John Brinsley and Rebecca Christie

Aug. 15 (Bloomberg) -- International buying of U.S. financial assets fell in June, posting the smallest gain in nine months, as investors sold stocks and demand weakened for corporate bonds.

Total net purchases of long-term equities, notes and bonds dropped to $53.4 billion, from a revised $83.2 billion the previous month, the Treasury Department said today in Washington. Including short-term securities such as Treasury bills and non-market trades such as stock swaps, foreigners bought a net $51.1 billion, up from net buying of $12.3 billion a month earlier that was revised from $2.5 billion in sales.

Stocks fell in June by the most in more than five years on concern that the U.S. housing market collapse and credit crunch would deepen. Federal Reserve policy makers cautioned that month about ``downside risks'' to growth and rising inflation threats while keeping its benchmark interest rate at 2 percent.

``The data is a bit of a disappointment and signals that the global financial environment is responding to continued uncertainty in the U.S. financial and economic situation,'' said Joseph Brusuelas, chief economist at Merk Investments LLC in Palo Alto, California. ``There may be a bit of a bounce back in the next couple of months.''

Economists had predicted international investors would buy a net $60 billion of long-term securities in June, based on the median of 11 estimates in a Bloomberg News survey, down from a previously reported gain of $67.0 billion in May.

Notes, Bonds

The report also showed that foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac strengthened from a month earlier on more buying by private investors. Buying of long-term agency debt rose a net $31.4 billion, the most since February.

Net purchases of Treasury notes and bonds increased $28.3 billion, compared with $5.7 billion a month earlier. Net foreign official buying rose of Treasury bonds and notes totaled a net $1.1 billion, after net sales of $3.7 billion the previous month.

Net purchases of all U.S. financial assets by foreign governments totaled $14.9 billion after a $16.4 billion net gain in May, the report showed.

The Treasury's reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy mortgages.

The dollar rose 1 percent in June, the third straight monthly advance, based on a trade-weighted index of major currencies. The Standard & Poor's 500 stock index fell 8.6 percent in June, the biggest monthly drop since September 2002.

Stock Selloff

International sales of U.S. stocks totaled a net $1.8 billion, compared with net purchases of $16 billion in May. Foreigners bought a net $4.7 billion of corporate bonds, compared with net purchase of $59.8 billion a month earlier.

U.S. investors bought a net $9.2 billion of overseas assets in June.

Japan, the largest foreign owner of U.S. Treasury securities, expanded its holdings by $5.1 billion to $583.8 billion. China, the second-largest holder, reduced its holdings by $3 billion to $503.8 billion, the Treasury said.

The U.K., which through London acts as a transit point for international investors, especially those in the Middle East, bought an additional $7.9 billion, bringing holdings to $280.4 billion.

To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.netJohn Brinsley in Washington at jbrinsley@bloomberg.net