May 16 (Bloomberg) -- International investors accumulated U.S. assets in March at the slowest pace in almost a year and a half, suggesting record current account and budget deficits may be damping foreigners' confidence in the world's largest economy.

Investors bought a net $45.7 billion in Treasury notes, corporate bonds, stocks and other financial assets, compared with $84.1 billion in February and $92.4 billion in January, the Treasury said today in Washington. The median forecast of 14 analysts surveyed by Bloomberg News called for a net purchase of $70 billion.

Today's figures also reflect increased U.S. purchases of foreign securities. International demand ebbed for U.S. stocks, while purchases of U.S. bonds rose. Americans bought more stocks of overseas companies. The March figure compares with a monthly average of about $60 billion over the last three years and is the lowest since a $26.5 billion gain in October 2003.

``The flows that are coming to the U.S. are in the form of bonds,'' Sean Callow, a currency strategist at IDEAGlobal in New York, said before the report. ``The U.S. has the deepest corporate debt market in the world. For foreigners, corporate debt is the new equity. You get better yield than Treasuries and it's not as risky as stocks.''

The yield on the benchmark 10-year Treasury note rose 10 basis points in March to 4.48 percent. The Standard & Poor's 500 Stock Index fell 1.9 percent in March, and is almost 5 percent lower from the start of the year.

Investors monitor the report as a gauge of demand for dollars after the U.S. currency swung by an average three-quarters of a cent versus the euro on the day of each monthly report on foreign investment in 2004, according to Bloomberg calculations.

Dollar

Earlier today, the dollar climbed to the highest in a month against the yen and traded near the strongest since October against the euro on signs the U.S. economic expansion will exceed growth in Japan and Europe. As of 8 a.m., the dollar rose to 107.6 yen today from 107.32 on May 13. The euro was worth $1.2608, compared with $1.2633 on May 13.

The total 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 that doesn't include foreign direct investment and bank deposits.

Total purchases of domestic securities were $1.53 trillion in March. Total sales were $1.47 trillion.

Purchases of Treasury holdings rose by a net $27.9 billion. Foreigners increased net stock holdings by $1.7 billion. Demand for U.S. corporate bonds rose by a net $23 billion. Demand for agency debt increased by a net $7.5 billion.

Foreign Bonds in U.S.

Foreigners also had net decrease of $14.4 billion in foreign bonds traded in the U.S. and net increase of $25 million in stocks traded in the U.S.

Investors abroad held $1.98 trillion of the roughly $4 trillion in marketable U.S. Treasury securities outstanding during the month, according to the Treasury figures.

Japan, the largest foreign holder of government securities, sold a net $800 million in March, after a net purchase of $1 billion in February. Japan accounts for $679.5 billion of Treasuries held by overseas investors, followed by China with $223.5 billion. Caribbean banking centers, which analysts link to hedge funds based in the region, overtook the U.K. to become the third-biggest investor, with $137.2 billion. Caribbean holdings rose by $32.5 billion in the month.

Until March 2004, Japan bought Treasuries with proceeds from yen sales it undertook to hold down the value of its currency as a way of helping its exporters. Japan hasn't sold yen since exchanging $290 billion worth of its currency for dollars in the first three months of 2004.

Twin Deficits

China buys dollars to ensure its currency, the yuan, stays at about 8.3 to the dollar, where it has been fixed for nine years. China's net purchases fell $1.4 billion.

The U.S. current account deficit widened every quarter last year, to reach an unprecedented 5.6 percent of the economy at the end of the year, while the U.S. federal budget deficit grew to a record $412 billion.

Recent data has indicated both may narrow. The U.S. government posted the largest April budget surplus in three years, and the trade gap unexpectedly shrank in March to $55 billion, the narrowest in six months.

To contact the reporters on this story: Kevin Carmichael at (1) kcarmichael@bloomberg.net; Simon Kennedy at (1) skennedy4@bloomberg.net;

Last Updated: May 16, 2005 09:00 EDT