2nd UPDATE:May Net Foreign Sales Of Long-Term US Securities $37.2 Billion

Despite $37.2 billion in net foreign sales of long-maturity U.S. securities in May, foreign investors appear to be showing a stronger appetite for some U.S. investments, according to a Treasury Department report Thursday.

Foreigners purchased $16.8 billion in U.S. stocks in May, the highest level since the recession officially began in December 2007.

Meanwhile, China's holdings of U.S. Treasury securities grew in May despite intensifying talk of a shift away from the dollar as the global reserve currency.

"As of yet, we have not seen a sustained move in terms of dollar-denominated assets being shed," Dan Greenhaus of Miller Tabak & Co. wrote in a client note following the release of the data.

The Treasury Dept. report showed net foreign sales of long-maturity U.S. securities totaled $37.2 billion in May, following sales of $8.5 billion the month before.

"The bottom line is that the overall situation in terms of capital flows looks manageable, and we are not looking at any dramatic or unhealthy shifts that would be a source of concern for the U.S. dollar," IHS Global Insight Chief U.S. Economist Brian Bethune wrote.

The monthly Treasury report highlights cross-border acquisitions of securities with maturities of more than one year including non-market transactions such as stock swaps and principal repayment on asset-backed securities.

The closely-watched figure, excluding transactions that don't occur on an open market, recorded net sales of $19.8 billion in long-term U.S. securities, after purchases of $11.5 billion in April, according to the monthly Treasury International Capital report, known as TIC. The report's most comprehensive category, "monthly net TIC flows," includes non-market flows, short-term securities and changes in banks' dollar holdings. This measure of net foreign capital outflow was $66.6 billion in May, versus an outflow of $38.0 billion the previous month.

"These shifts may lead to some modest downward pressure on the U.S. dollar, but the recent improvement in the U.S. trade deficit substantially reduces net overseas financial requirements, while foreign private demand for U.S. corporate bonds and equities is picking up in response to recent positive earnings reports," Bethune wrote.

Financial market analysts consider the monthly data from the Treasury Department to be a significant but imprecise gauge of how easily the U.S. can finance its trade deficit. The May TIC flow compares with the $25.96 billion trade deficit during the month.

Within the long-term securities category, foreign net sales of U.S. Treasury notes and bonds totaled $22.55 billion in May, compared with net purchases of $41.89 billion the month before.

Private foreign investors sold a net $343 million in Treasury notes and bonds in May, after buying $24.79 billion in April. Meanwhile, foreign official institutions such as central banks sold a net $21.76 billion of these Treasurys, compared with net purchases of $17.13 billion the month before.

The sales likely indicate maturing securities and not a sustained shift away from Treasury securities, Wells Fargo wrote in a client note.

Net foreign purchases of debt issued by U.S. government-sponsored agencies like Fannie Mae (FNM) and Freddie Mac (FRE) totaled $12.81 billion in May, compared with sales of $2.48 billion in April.

For U.S. equities, net foreign purchases totaled $16.73 billion in May, compared with purchases of $4.58 billion the previous month.

For corporate bonds, net foreign purchases were $935 million, versus sales totaling $9.73 billion the previous month.

China remained the largest holder of U.S. Treasury securities, having surpassed Japan late last year. China increased its holdings to $801.5 billion in May. Japan, the second-largest holder of U.S. Treasurys, decreased its holdings to $677.2 billion.

The TIC data, typically released around the 11th business day of the month, can be found on the Treasury's Web site at: http://www.treas.gov/tic. With each monthly release, Treasury revises the previous month's data as well.

The next report, covering June, is scheduled for release on Aug 17.

-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-9275; [e-mail]