Foreigners Sold Record $69.3 Billion in U.S. Assets (Update2)
By John Brinsley and Kevin Carmichael
Oct. 16 (Bloomberg) -- International investors sold a record amount of U.S. financial assets in August as tightening access to credit threatened economic growth and spurred an exodus from American stocks.
Total holdings of equities, notes and bonds fell a net $69.3 billion after an increase of $19.2 billion in July, the Treasury Department said today in Washington. Including short- term securities such as Treasury bills, foreigners sold a net $163 billion, compared with a gain in the previous month.
Demand for U.S. stocks overseas declined as the deepening housing recession and credit-market rout threatened investment, hiring and consumer spending. The drop in purchases was the first since August 1998, when Russia defaulted on its debt.
``The turmoil in August had a huge impact,' said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. ``These figures will refocus attention on that and may aggravate the tensions in the market.'
After the report, the dollar pared gains against the euro, trading at $1.4169 at 9:35 a.m. in New York, from as high as $1.4144 earlier today.
Economists predicted international investors would buy a net $60 billion of long-term securities in August, 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.
Agency Debt
International holdings of U.S. stocks fell a net $40.6 billion, compared with net purchases of $21.2 billion in July. The Standard & Poor's 500 Index rose 1.3 percent in August, while the Dow Jones Industrial Average gained 1.1 percent.
International demand for Treasuries decreased by $2.6 billion, compared with a loss of $9.4 billion the previous month. The yield on the benchmark 10-year note in August averaged 4.73 percent, compared with 5.04 percent in July.
Holdings of agency debt increased a net $9.6 billion after a $8.7 billion net gain the month before.
U.S. investors bought a net $34.5 billion of overseas assets in August, after buying $5.5 billion in July.
Private investors sold a net $10.6 billion, compared with a net $20.6 billion in purchases a month earlier. Official purchases, including those by central banks, fell by $24.2 billion after an increase of $4.4 billion in July.
Foreigners sold a net $1.2 billion of corporate bonds, compared with a $4.5 billion increase in July.
Dollar's Decline
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 trade deficit in August shrank 2.4 percent to $57.6 billion, the smallest since January, as exports climbed to a record, the Commerce Department said on Oct. 11.
The U.S. current-account deficit, a broader measure of trade that includes investment income and transfers, narrowed to $190.8 billion in the second quarter, the Commerce Department said on Sept. 14.
The U.S. dollar dropped 0.2 percent in August against the currencies of 17 major U.S. trading partners, the seventh straight monthly decline.
Chinese investors decreased their holdings of U.S. government debt $8.8 billion in August, while Japanese investments declined $24.8 billion, the Treasury said. Holdings the U.K. jumped $33.4 billion.
Caribbean banking centers, which analysts link to hedge funds, bought a net $33.1 billion.
Holdings of Major oil exporters -- a group that includes the members of the Organization of Petroleum Exporting Countries, Ecuador, Bahrain, Oman and Gabon -- were unchanged at $123.3 billion.
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