International demand for U.S. assets rises on global slowdown

International purchases of U.S. stocks, bonds and other financial assets rose more than forecast in December as investors sought shelter from slowing global growth.

Net buying of long-term financial assets totaled $64.2 billion during the month, up from net purchases of $52.4 billion in November, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $35 billion of long-term assets, according to the median estimate.

“Even with the fiscal issues, Treasuries are the deepest most liquid markets in the world for safe assets,” Thomas Simons, a government debt economist at Jefferies Group Inc. in New York said before the report was released. “At the end of the year there was some concern in risk markets that generated safe haven flows.”

The International Monetary Fund in January cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce an economic recovery.

The world economy will expand 3.5% this year, less than the 3.6% forecast in October, the Washington-based IMF said in an update of its World Economic Outlook report. While the fund projects growth this year increasing from last year’s 3.2% pace, it expects the 17-country euro area to shrink 0.2% in 2013, instead of growing 0.25 as forecast in October.

President Obama

President Barack Obama and Republicans are locked in a standoff over how to avert $1.2 trillion in automatic spending cuts set to take effect on March 1 unless Congress acts to stop or replace them. In addition, a temporary suspension of the nation’s $16.4 trillion debt ceiling only runs through May 18.

Including short-term securities such as stock swaps, foreigners bought a net $25.2 billion in December, down from net purchases of $29.7 billion the previous month.

China remained the biggest foreign owner of U.S. Treasuries in December after its holdings rose $19.7 billion to $1.2 trillion, according to the Treasury. Japan, the second-largest holder rose $2.5 billion to $1.12 trillion in holdings.

Foreigners bought a net $29.9 billion of Treasuries in December, according to today’s report, up from $26.4 billion the month before.

Estimates of foreign transactions in long-term U.S. assets in December ranged from net buying of $28.5 billion to $60 billion, according to five economists surveyed by Bloomberg before the report.

Bloomberg News

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