Feb. 17 (Bloomberg) -- International demand for long-term U.S. financial assets rose more than economists forecast in December as foreign investors bought the most corporate debt since June.

Total net purchases of long-term equities, notes and bonds increased to $34.8 billion, compared with net selling of a revised $25.6 billion in November, the Treasury Department said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $74 billion, compared with net buying of $61.3 billion the previous month.

Stock prices rose and the dollar declined in the final month of 2008, when the Federal Reserve cut its benchmark lending rate to as low as zero. Investors abroad flocked to debt issued by U.S. companies as yields rose amid a lack of available credit.

“The sharp rise in credit spreads in the aftermath of Lehman increased the attraction of U.S. corporate debt,” said Lena Komileva, head of market economics at Tullett Prebon Plc in London, referring to the collapse last year of Lehman Brothers Holdings Inc. Still, she said, “the monthly intake remained depressed by historical standards, reflecting very cautious attitudes toward risk as the cost of hedging remains high.”

Economists predicted international investors would buy a net $20 billion of long-term securities in December, based on the median of seven estimates in a Bloomberg News survey.

The Standard & Poor’s 500 Index climbed 7 percent in December. The dollar fell 3.3 percent, snapping a streak of four monthly gains, against a basket of currencies of major U.S. trading partners.

Corporate Debt

The Treasury’s reporting on long-term securities captures international purchases of 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 investors bought a net $41 billion in U.S. corporate debt in December, after five straight months of net selling, the report showed.

Net foreign purchases of Treasury notes and bonds were $14.9 billion, compared with sales of $25.8 billion a month earlier. Net purchases of Treasury bills were $25.3 billion, down from $82.1 billion in November.

Net foreign official selling of long-term U.S. assets totaled $2.8 billion, after net sales of $37.1 billion the previous month, the report showed.

Agency Debt

Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac continued to slide, with net sales of $37.4 billion after net selling of $22.5 billion in November.

Net foreign purchases of U.S. equities were $3.9 billion in December, after net purchases of $4.4 billion the previous month.

China was the biggest foreign holder of U.S. Treasuries, after its holdings rose $14.3 billion to $696.2 billion. Japan, the second-largest holder, had holdings that increased by $800 million to $578.3 billion.

Some economists say the difference between the trade deficit and securities purchased by foreigners is an indicator of how easily the U.S. can finance its external obligations.

The U.S. trade deficit narrowed 4 percent in December to $39.9 billion, the smallest in almost six years, as imports and exports declined for the fifth straight month, the Commerce Department said in a report Feb. 11.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: February 17, 2009 09:55 EST