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International buying of U.S. financial assets in December slowed for a second month on weaker demand for Treasuries and debt issued by Fannie Mae and Freddie Mac.

Foreign holdings of equities, notes and bonds rose a net $56.5 billion, after a $90.9 billion increase in November, 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 $60.4 billion, from $150.8 billion a month earlier.

Demand for all U.S. financial assets gained for a fourth straight month after a collapse in credit markets led to net selling in August. Still, some central banks at the end of last year reduced holdings of U.S. Treasuries, today's report showed.

“Foreign investors aren't selling their most liquid holdings,'' said Michael Woolfolk, a senior currency strategist at Bank of New York Mellon in New York. “Treasuries were a bit of a surprise, but at least it was positive.''

Economists predicted international investors would buy a net $73.5 billion of long-term securities in November, based on the median of 14 estimates 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 slowed to a net gain of $1.4 billion, after a $23.5 billion increase in November. The yield on the benchmark 10-year note in December averaged 4.09 percent, compared with an average of 4.15 percent the month before.

Agency Debt

Holdings of Fannie Mae, Freddie Mac and other so-called agency debt dropped a net $3.1 billion, after a net $26.6 billion increase the month before.

Private investors bought a net $33.3 billion of total U.S. financial assets in December, compared with a net rise of $58.5 billion a month earlier same day payday loans. Official purchases, including those by central banks, were up $35.8 billion, after a rise of $11.8 billion in November.

International holdings of U.S. stocks rose a net $33.4 billion in December, compared with net purchases of $4.8 billion the previous month.

The Standard & Poor's 500 Index fell 0.9 percent in December and the Dow Jones Industrial Average lost 0.8 percent.

Foreigners bought a net $37.5 billion of corporate bonds, compared with net purchases of $15.4 billion in November.

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.

Trade Deficit

The U.S. trade deficit shrank more than forecast in December to $58.8 billion, the Commerce Department said in a report yesterday. For all of last year, the trade gap shrank 6.2 percent to $711.6 billion, the biggest decrease since 1991.

The U.S. dollar rose 2.1 percent in December, the biggest monthly increase since March 2001, according to a Federal Reserve trade-weighted index of the currency.

Japanese investors Chinese decreased their holdings of U.S. government debt in December by $9.7 billion, while holdings in the U.K. declined by $15.9 billion. Chinese investors increased their holdings by $18.7 billion. Caribbean banking centers, which analysts link to hedge funds, gained a net $9.2 billion.

“Despite the volatility, the trend is clearly higher'' from overseas, said Meg Browne, a senior currency strategist at Brown Brothers Harriman & Co. in New York.

Major oil exporters — a group that includes the members of the Organization of Petroleum Exporting Countries, Ecuador, Bahrain, Oman and Gabon — lowered holdings by $900 million.

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