China has increased its US debt holdings for the second month in a row as the country looks for new ways to spend its rising foreign currency reserves. China, the largest foreign buyer of US government debt, also has the largest foreign exchange reserves in the world.

A large part of Beijing's foreign exchange reserves are invested in US government bonds, and the latest data from the US Treasury department shows that China purchased an additional $12.7 billion of US Treasuries in February.

The February purchase increases China's holdings for a second consecutive month, increasing by 1.1 percent to $1.18 trillion.

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Despite the S&P's downgrade of US government bonds last August, US government debt is still considered one of the safest investments and demand for US bonds has increased as investors seek safe havens for their money given Europe's debt problems.

On Monday, the cost of borrowing for Spain jumped above 6%, raising concerns about the ability of the government to repay its debts.

Analysts add that hopes of a recovery in the US economy may have played a part in China's increased purchase of US Treasuries.

According to the Treasury Department, America's second-largest lender, Japan, also increased its holdings by 1.2 percent to $1.096 trillion in February as it intervened to curb the yen's appreciation against the dollar.

Presently, China's foreign exchange reserves totals more than $3 trillion, and more than two-thirds of that amount is believed to be held in US dollars.

Speaking to Reuters, Douglas Borthwick, managing director of Faros Trading said:

China can't just stop buying Treasuries. That would hurt them given their overall position.

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This year, the nonpartisan Congressional Budget Office expects the federal deficit to total $1.17 trillion for the budget year ending September 2012 - the United States' fourth consecutive year of deficits exceeding $1 trillion.

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