International Buying of U.S. Financial Assets Jumps in October

Dec. 17 -- International buying of U.S. financial assets rose twice as much as expected in October as investors snapped up Treasury securities at the fastest pace in almost two years.

Total holdings of equities, notes and bonds increased a net $114 billion, after a revised increase of $15.4 billion in September, 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 $97.8 billion, compared with selling of $32.8 billion a month before.

Purchases of U.S. equities in October were the most in five months, helping offset net selling by China, the report showed. Investor demand for American stocks and bonds returned for a second straight month after credit market turmoil contributed to record sales of long-term assets in August.

``October reflected calm in the middle of the storm, where equity markets rebounded and risk aversion subsided, and foreign investors likely rebuilt their positions'' in U.S. assets, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, before the report. ``Investment in the stock market rebounded quite smartly in late September and early October.''

International holdings of U.S. stocks gained a net $30.2 billion in October, compared with net purchases of $2.6 billion in September. The Standard & Poor's 500 stock index rose 1.5 percent in October, while the Dow Jones Industrial Average gained 0.3 percent in the third straight month of advancing stocks.

Doubles Forecast

Economists predicted international investors would buy a net $50 billion of long-term securities in October, based on the median estimate in a Bloomberg News survey.

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

International demand for Treasuries increased by $49.8 billion, compared with a gain of $26.3 billion in the previous month. The yield on the benchmark 10-year note in October averaged 4.47 percent, compared with an average of 4.59 percent in September.

Holdings of agency debt rose a net $14.9 billion, after an $11.5 billion gain the month before.

Private investors bought a net $96.2 billion, compared with a net rise of $27.9 billion a month earlier. Official purchases, including those by central banks, were up by $21.8 billion, after a rise of $28.5 billion in September.

Foreigners bought a net $23.1 billion of corporate bonds, compared with net purchases of $16.1 billion in September.

Trade Deficit

Some economists say the difference between the U.S. trade gap and securities purchased by foreigners is an indicator of how easily the nation can finance its external obligations.

The U.S. trade deficit widened in October as the value of imported crude oil rose to a record. The gap grew 1.2 percent to $57.8 billion from a revised $57.1 billion in September, the Commerce Department said last week.

The U.S. dollar dropped 2.6 percent in October, the biggest monthly decline since May 2006, according to a Federal Reserve trade-weighted index of the currency.

Chinese investors decreased their holdings of U.S. government debt by $8.6 billion in October, while Japanese investments increased by $9.8 billion, the Treasury said. Holdings in the U.K. rose $30.5 billion.

Caribbean banking centers, which analysts link to hedge funds, gained a net $6.5 billion.

Holdings of major oil exporters -- a group that includes the members of the Organization of Petroleum Exporting Countries, Ecuador, Bahrain, Oman and Gabon -- increased to $4.6 billion to $130.3 billion.