China trimmed its holdings of U.S. debt by 34.2 billion U.S. dollars in December 2009, leaving Japan as the largest holder of U.S. Treasury securities, the U.S. Treasury Department reported on Tuesday.

The figures reflect demand for U.S. Treasury obligations and other assets, including stocks and government agency debt, a key to funding the massive U.S. balance of payments deficit with the rest of the world.

According to the Treasury International Capital (TIC) report, foreign holdings of U.S. Treasury securities fell by 53 billion dollars in December, surpassing the previous record drop of 44.5 billion dollars in April 2009.

The 53-billion-dollar decline in holdings of Treasury securities came primarily from a drop in official government holdings, which fell by 52.3 billion dollars. The holdings of foreign private investors fell by 700 million dollars during December.

While China cut its holdings of the U.S. long-term securities, Japan and Britain increased their stakes.

Japan boosted its holdings of U.S. Treasuries by 11.5 billion dollars to 768.8 billion dollars in December, outpacing China's December total of 755.4 billion dollars.

Next on the list, Britain also increased its holdings to 302.5 billion dollars from 277.6 billion dollars in November. Brazil lifted its holdings to 160.6 billion dollars in December from 157.1 billion dollars in the previous month.

The next release, which will report on data for December 2009, is scheduled for March 15.

The reductions in holdings, if they continue, could force the U.S. government to make higher interest payments at a time when it is running record federal deficits.

For all of 2009, foreign holdings of U.S. Treasuries dipped by 500 million dollars. In 2008, foreigners had increased their holdings of U.S. Treasuries by 456 billion dollars as a global financial crisis triggered a flight to the safety of U.S. government debt.

The U.S. government on Feb. 1 released a new budget plan which projects that the deficit for fiscal year 2010 ending in September will total a record 1.56 trillion dollars.

Critics say the trillion-dollar-plus deficit will not be sustainable and will eventually damage the economy.

The Obama administration has pledged to begin addressing the huge government deficits and he will soon appoint a commission to recommend ways to trim future deficits.