By David Yong and Wes Goodman
Oct. 17 (Bloomberg) -- Japan, China and Taiwan sold U.S. Treasuries at the fastest pace in at least five years in August as losses linked to U.S. subprime mortgages sparked a slump in the dollar.
Japan cut its holdings by 4 percent to $586 billion, the most since a new benchmark for the data was created in March 2000, Treasury Department figures published yesterday showed. China's ownership of U.S. government bonds fell by 2.2 percent to $400 billion, the fastest pace since April 2002. Taiwan's slid 8.9 percent to $52 billion, the most since October 2000.
Asia's dumping of Treasuries exacerbated the biggest sell- off in U.S. financial assets since Russia defaulted in 1998. The dollar has declined 7 percent this year to a record low against the euro, and 6.5 percent against a basket of six major world currencies as the Federal Reserve cut interest rates last month to limit a housing market slump.
``People are concerned about the U.S. dollar falling,'' said Hiromasa Nakamura, who helps oversee the equivalent of $25.7 billion at Mizuho Asset Management Co. in Tokyo. ``The Fed will continue to cut rates and the dollar may fall for three to six months.''
The Fed on Sept. 18 cut its overnight rate for loans between banks to 4.75 percent from 5.25 percent to avoid a recession. Fed Chairman Ben S. Bernanke said this week that markets have strengthened since August, though a full recovery ``is likely to take some time.''
The five biggest Asian holders, which include South Korea and Hong Kong, trimmed holdings by 3.6 percent to $1.14 trillion, or 51 percent of all foreign investment in U.S. government debt, the Treasury Department said.
Total holdings of equities, notes and bonds fell a net $69.3 billion in August after an increase of $19.2 billion in July, the Treasury Department said. None of the dozen economists surveyed by Bloomberg News predicted the decline, the first since Russia defaulted in 1998.

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