China rebuffs report it plans to halt United States treasury purchases

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The dollar fell against other currencies on Wednesday after a report that China may slow or halt its US treasury purchases, with the greenback falling more than 1% against the Japanese yen.

Bloomberg News had reported on Wednesday that Chinese officials reviewing the country's foreign exchange holdings had recommended slowing or halting purchases of U.S. Treasury bonds, pushing 10-year yields higher and the dollar lower.

"If China was to reduce their involvement in buying United States government debt, it would have a significant impact on interest rates, which is why I think we're seeing our banks lead the market lower today", said Christopher Conway, head of research and trading at Australian Stock Report.

"That should have been good news for the USA dollar, but it's still trading very weakly - it's a weak dollar story", said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

"We think this story could be quoting a mistaken source or it could also be a piece of fake news".

Bloomberg News did not immediately comment on the foreign exchange regulator's statement.

The dollar has been struggling to gain traction in the opening days of 2018 after losing around 10 percent against a basket of currencies a year ago as economic growth elsewhere, notably Europe, overtook the U.S.

While it is conceivable that China could make some adjustments to its foreign reserve holdings, it seems "highly unlikely" that China will stop buying U.S. Treasuries, said Stephen Innes, head of trading for Oanda in Singapore.

Economists made clear, however, that China would not be able to make radical changes to the composition of its reserves as it needs them to manage the exchange rate of the renminbi.

"One thing that has been really important to China is that the Treasury market is so deep and so liquid", said Amar Reganti, a fixed-income strategist at GMO's asset-allocation group, and former deputy director of the Treasury's Office of Debt Management.

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The US dollar fell, as did US bonds and stocks.

When China buys USA bonds it is effectively bank-rolling the United States.

"We've noticed recently that protectionist voices have been rising in the US", China's Ministry of Commerce spokesman Gao Feng said at a regular news briefing.

U.S. West Texas Intermediate (WTI) crude futures traded at $63.47 per barrel, down 10 cents, after hitting a high of $63.67 in the previous session, their loftiest level since December 2014.

This has nothing to do with trade disputes and everything to do with the changing composition of the global economy, which has seen faster growing emerging markets like China laying claim to a larger slice of world GDP.

China's foreign exchange reserves, the world's largest, rose US$129.4 billion in 2017 to US$3.14 trillion, as tight regulations and a strong yuan continued to discourage capital outflows, data from China's central bank showed.

The USD also lost ground Vs a basket of major currencies.

Brent has gained 5 percent since the beginning of the year, picking up from its late-year surge. The debt is becoming less attractive compared with other assets and trade tensions with the US may provide a reason for the shift, the thinking of the officials goes, according to the people.

The debt holdings accounted for 38 percent of China's total reserves, up from 35 percent at the end of 2016.

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