Nov. 16 (Bloomberg) -- International purchases of U.S. financial assets rebounded less than forecast in September after record selling a month earlier, as investors bought the most Treasuries in six months.

Total holdings of equities, notes and bonds rose a net $26.4 billion after sales of a revised $70.6 billion in August, the Treasury Department said today in Washington. Including short-term securities such as Treasury bills and non-market trades such as stock swaps, foreigners sold a net $14.7 billion, compared with a revised loss of $150.7 billion a month earlier.

Investor demand for U.S. stocks and bonds returned after the Federal Reserve in September lowered its benchmark interest rate to combat a surge in mortgage defaults. Fed Governor Randall Kroszner today said policy makers probably won't need to further lower borrowing costs to help the economy weather a ``rough patch'' in the coming year.

``Certainly August was the height of the market turmoil, and some investors are willing to judge that as a one-off,'' said Todd Elmer, a currency strategist at Citigroup Global Markets in New York. ``The trend in capital flows still isn't that positive.''

The dollar fell to $1.4664 per euro at 9:57 a.m. in New York, from $1.4656 just before the release of the report. The U.S. currency was little changed at 110.40 yen.

Treasuries completed their biggest quarterly rally in five years after the Fed on Sept. 18 lowered its overnight lending rate to 4.75 percent. Investors also increased positions of U.S. equities, which had the biggest September advance since 1998.

`Poor' August

``August was such a poor month, and things stabilized in September,'' Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York, said before the report. ``There's no evidence people are pulling money out of the U.S. permanently.''

Economists predicted international investors would buy a net $71.5 billion of long-term securities in September, based on the median estimate in a Bloomberg News survey.

The Treasury's reporting on long-term securities captures international purchases of U.S. government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy mortgages.

International holdings of U.S. stocks rose a net $2.5 billion in September, compared with net sales of $40.7 billion in August. The S&P 500 rose 3.6 percent in September, while the Dow Jones Industrial Average gained 4 percent. The advance in stocks contrasted with July and August, when the S&P index had its largest slump in four years.

Agency Debt

International demand for Treasuries increased by $26.3 billion, compared with a loss of $2.8 billion in the previous month. The yield on the benchmark 10-year note in September averaged 5.42 percent, compared with averaged 4.73 percent in August.

Holdings of agency debt increased a net $11.5 billion, after an $8.4 billion gain the month before.

U.S. investors sold a net $29 billion of overseas assets in September, after selling $34.5 billion in August.

Private investors bought a net $26.8 billion, compared with net sales of $11.8 billion a month earlier. Official purchases, including those by central banks, rose by $28.5 billion, after a decrease of $24.2 billion in August.

Foreigners bought a net $15.1 billion of corporate bonds, compared with net sales of $934 million in August.

Some economists say the difference between the U.S. trade gap and securities purchased by foreigners is an indicator of how easily the nation can finance its external obligations. The trade deficit unexpectedly narrowed in September as a weaker dollar boosted exports.

Trade Deficit

The U.S. current-account deficit, a broader measure of trade that includes investment income and transfers, narrowed to $190.8 billion in the second quarter, the Commerce Department said on Sept. 14.

The U.S. dollar dropped against the currencies of 13 of its 16 major trading partners in September.

Chinese investors decreased their holdings of U.S. government debt by $3.5 billion in September, while Japanese investments declined $3.4 billion, the Treasury said. Holdings in the U.K. advanced $22.4 billion.

Caribbean banking centers, which analysts link to hedge funds, sold a net $4.9 billion.

Holdings of major oil exporters -- a group that includes the members of the Organization of Petroleum Exporting Countries, Ecuador, Bahrain, Oman and Gabon -- rose to $2.4 billion to $125.7 billion.

To contact the reporter on this story: John Brinsley in Washington at jbrinsley@bloomberg.net

Last Updated: November 16, 2007 10:34 EST