China Reduces US Debt Holdings In December

WASHINGTON (AP) - China, the biggest buyer of U.S. Treasury securities, reduced its holdings in December for the second straight month.

China's holdings of Treasury debt dropped 0.4 percent to $892 billion, the Treasury Department said Tuesday. The declines follow four months of increases. China's ownership of U.S. government debt is slightly below the $895 billion it held a year ago.

Overall, foreign holdings of Treasury securities rose 0.6 percent $4.37 trillion. Britain and Japan ramped up their purchases of U.S. government debt in December. That suggests overseas governments and private investors are still willing to buy U.S. government debt.

The U.S. government is selling huge amounts of debt to finance record-high deficits. This year's deficit is forecast to reach $1.65 trillion this year, the highest ever. Last year the government posted a $1.3 trillion deficit.

Overseas demand for Treasurys helps lower the interest rate the U.S. government pays on its debt. If the United States had to finance its debt through U.S. investors alone, the government would have to pay higher rates. American companies and consumers would also pay higher rates.

Japan, the second-largest buyer of U.S. Treasurys, boosted its holdings 0.7 percent to $883.6 billion.

Britain, the third-largest, strongly increased its holdings 5.8 percent to $541.3 billion. Britain has tripled its holdings of U.S. Treasury securities in the past year.

About two-thirds of the U.S. Treasurys owned overseas are held by foreign governments and central banks. Governments cut their investments in Treasurys in December, while private foreign investors bought more.

President Barack Obama proposed a budget Monday that seeks to cut the deficit to $1.1 trillion next year and to $627 billion by 2017. Obama's budget seeks to trim $1.1 trillion from the deficit over the next ten years, with two-thirds of it from spending cuts and the rest from tax increases.

Voter unease over high deficits helped Republicans win a majority in the U.S. House and gain seats in the Senate. Republican leaders are calling for even steeper cuts in spending.