SHANGHAI (AFP)--China is expected to ease its spending on U.S. debt as growth in its foreign exchange reserves slows and Beijing seeks to fund its own economic stimulus plan, analysts say.

U.S. President-elect Barack Obama has proposed a stimulus bill expected to total at least $775 billion that he has acknowledged would drive the U.S. deficit significantly higher - and require financing from overseas.

China overtook Japan as America's biggest foreign creditor in September and as of October held $652.9 billion in U.S. Treasury bonds, according to the latest Treasury Department figures.

Beijing increased its Treasury bond holdings by $65.9 billion in October.

It marked a continuation of the trend that began in the third quarter, when it dumped government affiliated agency bonds, such as Fannie Mae (FNM) and Freddie Mac (FRE), and began putting money into safer Treasury bonds.

But such growth is not expected to last much longer.

"China's reserve growth is likely to slow, and over time so will its Treasury purchases - even if they haven't yet," said Brad Setser, an economist with the Washington-based Council of Foreign Relations.

"China isn't going to add close to $70 billion to its short-term Treasury holdings forever," he wrote on the council's Web site this week.

Beijing also warned last month it would not keep lending money to the U.S. economy indefinitely, in an editorial in the government-run China Daily, an English-language newspaper aimed at a foreign audience.

"China's increased purchase of U.S. Treasury securities should not be interpreted as an endorsement of the assumption that the U.S. can borrow its way out of the current financial crisis," it said in an editorial.

But at the same time, the editorial added any halt in Treasury purchases could push U.S. interest rates up and undermine Washington's efforts to bail out the economy. That, in turn, would hurt China's exports.

People's University of China economist Zhao Xijun agreed China's U.S. bond buying rate was likely to slow.

China could also use its reserves to import equipment, technology and raw materials as part of its stimulus plan, he said.

"These imports will reduce the trade surplus and in turn further slow the growth of foreign exchange reserves," Zhao said.

For years, China has channeled its foreign reserves - mostly generated by its trade surplus with the United States - into American debt. By doing so, it helped make U.S. borrowing cheaper and sustain the economic boom.

But the financial crisis is reshaping the global economy.

Although China's reserves, the world's largest, still rose in 2008 to $1.95 trillion by the year's end, last year marked the first time in a decade their growth had slowed.

They rose 27.3% in 2008 against 43.3% in 2007.

At the same time, Beijing has to fund a CNY4 trillion ($590 billion) stimulus package to revive its economy - whose growth could slow to 7.5% this year, the World Bank estimates, a level not seen since 1990.

Chinese economists expect the government to be much more cautious with its reserves in 2009.

"There are chances that America may sink into a second round of the financial crisis... we have no idea when the U.S. economy will bottom out," Bank of Communications economist Lian Ping said.

"If we increase the variety of China's overseas investments, we can better avert crises and risks," he said.

But China's options are limited as the largest owner of US Treasuries, said He Jun, an economist with the Beijing-based Anbound Consulting.

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