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Foreigners renewed purchases of American financial assets in June, as investors sought safe haven in Treasuries amid concerns about the timing of a recovery in financial markets and economies worldwide.

Total net purchases of long-term equities, notes and bonds were a net $90.7 billion, more than forecast and compared with net sales of $19.4 billion in May, the Treasury said today in Washington. Net buying of U.S. government notes and bonds totaled $100.5 billion, the most since records began in 1977, after net selling of $22.6 billion in May.

Investors in Japan and the U.K. increased their holdings of U.S. assets as the Obama administration sold debt to finance a record budget deficit and fund economic stimulus spending. Recent signs of stabilization may further boost the flow of foreign funds into the U.S. in coming months, even as emerging powers such as China and Russia question the U.S. dollar’s dominance in the global economy.

“As we have increased issuance, overseas holdings of our assets have gone nowhere but up,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “Despite all the worries regarding the potential of foreigners to rotate out of U.S. dollar-denominated assets, which will eventually cause a collapse in the dollar, no such action has been witnessed.”

Total monthly foreign investment flows were down $31.2 billion in June, compared with sales of $65.7 billion in May.

China, Japan

China, the biggest foreign holder of U.S. Treasuries, decreased its total holdings of U.S. government securities by $25.1 billion to $776.4 billion. China’s holdings of notes and bonds climbed $26.6 billion in June to $617.7 billion, a 4.5 percent increase, while bill holdings fell 25 percent to $158.7 billion, the Treasury’s data showed.

Japan, the second-biggest international investor, raised its total by $34.6 billion to $711.8 billion. Holdings by investors in the U.K. rose by $50.2 billion to $214 billion. Russia’s holdings fell by $4.6 billion to $119.9 billion.

China, Russia and other emerging economies such as Brazil have said that, over time, they would like to explore alternatives to the U.S. dollar as the world’s main reserve currency.

Analysts had anticipated international net purchases of long-term U.S. assets of $17.5 billion, according to the median of five estimates in a Bloomberg News survey.

Net purchases of American equities rose to $19.1 billion in June after $16.7 billion the prior month.

Stock Market

The average level of the Standard & Poor’s 500 Index was 2.6 percent higher in June than the month before. At the same time, stocks started to slide later in the month as economic reports raised questions about signs the U.S. economy was starting to stabilize.

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

Foreign investments in U.S. agency debt slowed to $5.1 billion in June. Investors sold $1.04 billion of corporate bonds, today’s report showed.

President Barack Obama is counting on nations such as China to help fund his $787 billion economic stimulus and separate programs to aid financial firms and homeowners amid the worst downturn since World War II, which has cost about 6.7 million jobs.

Budget Shortfall

The U.S. budget deficit reached a record for the first 10 months of the fiscal year and broke a monthly high for July as the recession curbed revenue and the government ramped up spending to rejuvenate the economy.

The shortfall so far for the fiscal year that ends Sept. 30 totaled $1.27 trillion compared with a $389 billion year-to-date gap in 2008, the Treasury said Aug. 12 in Washington. The excess of spending over revenue for July climbed to $180.7 billion compared with a $102.8 billion gap in July 2008 as the government spent more than in any month in U.S. history.

The nonpartisan Congressional Budget Office said last week that the stimulus plan has pumped $125 billion into the economy so far. The government also has committed funds to help the auto and banking industries, taking a major stake in automaker General Motors Co. and interests in some financial firms including Bank of America Corp. and Citigroup Inc.

Deficit Spending

“We had to engage in temporary deficit spending to stimulate this economy,” Jared Bernstein, chief economic adviser to Vice President Joseph Biden, said in an interview with Bloomberg Television last week. Growth needs to “get back on track so that we can cut that spending and get the deficit back down as a share of the economy,” he said.

China’s sales of Treasuries in June occurred the same month U.S. Treasury Secretary Timothy Geithner visited the country for the first time in office. Early in the month, he spent two days in Beijing meeting with Chinese officials including economic talks with President Hu Jintao and Vice Premier Wang Qishan.

In those talks, Chinese officials expressed “justifiable confidence in the strength and resilience and dynamism of the American economy,” Geithner said in an interview with state media in Beijing June 2. He also said there will be enough demand for record sales of U.S. debt.

U.S. and Chinese economic leaders on July 28 pledged to keep up stimulus efforts and to rein in trade and investment imbalances that contributed to the global economic crisis. The U.S. said it will curb its budget deficit and boost household savings while China committed to relying less on overseas demand for its goods.

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Filed under: money by Finance Boss