Foreign funds flooded into the United States at the fastest clip since March, as U.S. trading partners sought to prop up the tumbling dollar.

    Net foreign purchases of U.S. long-term securities hit $137 billion in August, Treasury said. That approaches the sum purchased in the previous three months and is the highest level since March's $159 billion.

    China added 2% to its official U.S. Treasury holdings during the month. China's official Treasury stash hit $868 billion in August, its highest level since April. China is America's largest foreign creditor and its second-largest trading partner, after Canada.

    Japan, the second-biggest foreign owner of U.S. government debt, also made official purchases in August, bringing its holdings to $837 billion.

    The increases come as policymakers around the world try to hold down the value of their currencies for the sake of boosting exports at a time of weak economic growth in much of the world.

    Congress is threatening China with sanctions for its practice of buying Treasury bonds with the proceeds of its sales of goods to the United States, effectively cheapening the yuan and bolstering China's politically connected exporters.

    China this summer indicated it would allow the yuan to slowly appreciate over a period of years, and despite the outcry in Congress the Obama administration said Friday that it recognized the efforts being made by Chinese leaders. Treasury delayed a report that could have branded China a so-called currency manipulator, which would be a first step toward possible trade restrictions.

    Though China's official holdings of U.S. Treasurys have stayed within a relatively tight range of $840 billion to $940 billion over the past year, there is evidence the Chinese have been making Treasury purchases in ways that aren't captured in the official statistics.

    China trade watchers point, for instance, to the fourfold increase in the U.K. holdings of Treasury securities over the past year (see chart, right). It is widely assumed that China uses accounts in the U.K. as well as in other banking centers, such as Hong Kong and the Caribbean, to make Treasury purchases, suggesting the official count is vastly understated.

    Meanwhile, China's foreign exchange reserves have been soaring, thanks to an expanding trade surplus.

    The flows between emerging markets such as China and the slow-growing West have become a concern for market watchers who suggest the Federal Reserve's tilt toward new monetary stimulus will unleash another round of destructive asset bubbles.