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Foreign central banks dump U.S. agency debt

NEW YORK, April 1 (Reuters) - Foreign central bank holdings of U.S. debt have fallen for a second straight week, the Federal Reserve reported on Thursday, though all the cut came in agency debt, rather than Treasuries.

The drop supports speculation that the Bank of Japan reined in it currency intervention recently, leaving it with fewer dollars to invest in U.S. debt. The BOJ, and some other Asian central banks, have been huge buyers of Treasury and agency debt in the past year as they parked dollars bought in intervention.

The Fed said its total holdings of Treasury and agency debt kept for offshore central banks fell $6.235 billion to $1.164 trillion in the week ended March 31. Even with this dip, holdings of Treasury and agency debt have climbed $92 billion so far this year, on top of a $217 billion rise in 2003.

The breakdown of the Fed's custody holdings showed overseas central banks bought a net $1.460 billion of Treasuries, taking their holdings to $934.269 billion. But they sold a net $7.696 billion in agency debt, taking those holdings to $230.388 billion.

Catching up with the fall in week-on-week holdings reported last week, the average of daily custody holdings dropped by $16.871 billion compared with the week before to stand at $1.159 trillion.

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