Foreign demand for U.S. Treasury securities rose to a record level in July and China increased its holdings after two months of declines.
The Treasury Department says total foreign holdings rose 0.7 percent in July to a record $5.35 trillion.
China, the largest foreign holder of Treasury debt, boosted its holdings to $1.15 trillion, up 0.2 percent from June. Japan, the second-largest buyer of Treasury debt, increased its holdings 0.6 percent to $1.12 trillion.
Demand for U.S. debt is rising in part because investors are worried about Europe's debt crisis and its impact on the global economy.
"With choppy financial markets and volatility in Europe, which were both widespread in July, private investors abroad purchased more Treasuries than any other asset class in July," said Jay Bryson, global economist at Wells Fargo.
U.S. government debt is considered one of the world's safest investments. Moody's, however, has warned it could lower America's top credit rating if Congress fails to reach a budget deal later this year.
Gregory Daco, senior U.S. economist at IHS Global Insight, predicted that foreign demand for Treasury debt would remain strong in coming months, in part because the U.S. economy will be doing better than Europe.
The report showed that holdings of Treasury debt by foreign governments increased 0.6 percent in July to $3.86 trillion. Foreign governments, including foreign central banks, account for 72 percent of the foreign ownership of U.S. Treasury securities.
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