Aug. 15 (Bloomberg) -- International investors increased purchases of U.S. financial assets in June as stocks fell around the world and investors sought safety in dollar assets.

Net holdings of Treasury notes, corporate bonds, stocks and other financial assets increased $75.1 billion, up from May's revised $63.6 billion, the Treasury Department reported today in Washington.

A worldwide decline in stocks in May and June was prompted by inflation fears, rising interest rates and plunging stocks in emerging markets. Stock indices in the U.S., Latin America, Canada and Europe declined in the second quarter. Investors, concerned about rising geopolitical tensions, turned to dollar assets to lessen risk, some analysts said.

``In June emerging markets were melting down and global equities in general had a difficult time,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. ``The unwinding of emerging market positions and the demand for safety and security, may have encouraged inflows into the short end of the U.S. debt market.''

Analysts expected inflows of $65 billion, the median of 19 forecasts in a Bloomberg News survey. International purchases of U.S. securities peaked at $102.6 billion in October and averaged $75.5 billion in the 12 months through May.

The investments were more than enough to cover June's $64.8 billion trade deficit, which some analysts say is an indicator of how easily the U.S. can pay for its record current account and trade shortfalls.

Fed Action

The Federal Reserve lifted its benchmark rate to 5.25 percent on June 29 and the interest rate-setting open market committee suggested the central bank was nearly through with its two year cycle of rate increases. The dollar fell that day by the most in two months against the Japanese yen. The Fed held its interest-rate target steady at its last meeting Aug. 8.

The Fed rate remains the highest among major central banks. The Bank of Japan's key rate was zero in June. The European Central Bank's rate was 2.75 percent, the Bank of England's was 4.5 percent and the Bank of Canada's was 4.25 percent.

Purchases of Treasury securities rose a net $27 billion, up from $8.2 billion in June. Demand for agency debt jumped $22.9 billion, compared with $34.6 billion a month earlier.

The U.K. and China increased their holdings of Treasury securities in June, while Japan and major oil exporters reduced their holdings. Caribbean banking centers, which some analysts tie to hedge funds, boosted their net holdings to $60.3 billion.

The net figure in today's report comprises Treasury notes and bonds; debt of so-called agencies such as Fannie Mae and Freddie Mac; corporate bonds and stocks; and the stocks and bonds of foreign companies bought from U.S. investors. The report is one measure of U.S. capital flows and doesn't include foreign direct investment and bank deposits.

Stock Holdings

Foreign purchases of U.S. stocks fell $4 billion, compared an increase of $2.7 billion in May. Corporate bond buying edged up to $38.8 billion, from $38.7 billion a month earlier.

The U.S. economy grew at a 2.5 percent annual rate in April through June, after advancing at a 5.6 percent annual rate in the first quarter.

The U.S. needs foreign capital to fund its current-account deficit, the broadest measure of trade because it includes investment income and transfers. The deficit rose to a record $804.9 billion, or 6.5 percent of gross domestic product, last year, the Commerce Department said.

Japan, the largest foreign holder of U.S. government securities, sold a net $2.6 billion in Treasuries in June and holds a total of $635.3 billion. China bought a net $3.1 billion in U.S. debt in June and holds $327.7 billion.

U.K. holdings, which some analysts say include investments from Middle East oil economies funneled through British banks, rose by $26.4 billion and total $201.4 billion.

-Editor: Rohner

To contact the reporter on this story: Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net

Last Updated: August 15, 2006 09:00 EDT