Foreign Purchases of U.S. Assets Fall

The dollar fell against the yen for a third straight day and weakened versus the euro after a government report showed demand among international investors for U.S. assets waned in December.

Foreigners bought a net $61.3 billion of U.S. financial assets, down from a revised $89.3 billion in November, the Treasury Department said Tuesday.

Economists expected net purchases of $58.3 billion, according to a Bloomberg survey.

“It was a steep drop, but the market had already been expecting a much smaller number,” said Peter Frank, senior currency strategist with ABN Amro Inc. in Chicago. Still, “If that’s the start of a pattern, it’s bad news for the dollar.”

The U.S. needs huge capital inflows from abroad to help cover record deficits. Against the yen, the dollar slid to 104.42 from 105.15 on Monday. The euro rose to $1.302 from $1.296 on Monday. The dollar had rallied strongly against the euro in January but has been giving back some of its gains in recent days.

The total net foreign purchases figure in Tuesday’s report comprises Treasury notes and bonds, debt of so-called agencies such as Fannie Mae and Freddie Mac, and corporate bonds and stocks. The report is one measure of U.S. capital flows that doesn’t include foreign direct investment and bank deposits.

Total foreign purchases of domestic securities were $1.317 trillion in December; total sales were $1.234 trillion.

Some analysts said the November and December inflows combined showed that the appetite for U.S. securities remained strong abroad.

“This is the best two-month performance since early 2003 and is associated with improving sentiment toward the U.S. economy,” said Steven Englander, a currency strategist at Barclays Capital.

Net purchases of U.S. corporate bonds totaled $40.8 billion, while demand for agency debt increased a net $26.6 billion.

But net purchases of Treasury securities totaled $8.3 billion, the smallest since the $6.9-billion figure of September 2003.

Net purchases of U.S. stocks were $7.1 billion, down from $14.5 billion in November.

The report also showed that U.S. investors continued to be net buyers of foreign stocks and bonds in December.

U.S. investors purchased a net $21.6 billion of foreign securities in the month, up from a revised $11.4 billion in November.

For all of 2004 U.S. investors bought a net $94 billion of foreign securities, up sharply from $62.3 billion in 2003. The weaker dollar last year made foreign securities worth more to U.S. investors when stronger foreign currencies were translated into dollars.