Page last updated at 14:46 GMT, Tuesday, 16 February 2010

Foreign demand for US debt drops by record amount

Dollars
The US needs to borrow to fund its massive budget deficit

Foreign demand for US Treasury bonds and notes fell by a record amount in December as China reduced its holdings.

The Treasury said foreign holdings of US debt dropped by $53bn, surpassing the previous record set last April.

China cut its holdings by $34.2bn - meaning it is now the second-biggest US debt holder after Japan.

The drop in demand may mean that the US has to pay more to borrow, just as the government has to fund a record budget deficit.

In total, net purchases of long-term stocks, bonds and notes increased by $63.3bn in December, which was lower than the increase of $126.4bn in the previous month, the Treasury said.

China was a net seller for a second straight month.

Its bond holdings amounted to $755.4bn in December, down from $789.6bn the previous month.

China has previously questioned whether the US bonds are safe and whether it can sustain its deficits. It has also questioned the US dollar's role as the world's reserve currency.

President Barack Obama earlier this month released a budget plan that expects the federal deficit for 2010 to be a record $1.56tn, surpassing last year's record of $1.4tn.

The dollar remained lower against the euro after the data was released.



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