CHINA’S foreign exchange reserves unexpectedly rose in June, bolstered by an increase in the value of its U.S. Treasury holdings in an otherwise volatile month for Chinese markets, which were battered by fears about a Sino-U.S. trade war.

Reserves rose US$1.51 billion in June to US$3.112 trillion, compared with a drop of US$14.23 billion in May, central bank data showed yesterday.

The State Administration of Foreign Exchange said the small increase in reserves was due to asset price changes but did not provide details.

Analysts pointed to the performance of U.S. bonds in June, which are believed to make up a major part of China’s reserves.

“U.S. Treasury yields were down in June, so valuation factors were conducive to an increase in foreign reserves,” said Er Yongjian, chief financial analyst at Bank of Communications.

Fears about a global trade war were among the factors in June that drove investment flows into safe haven assets, such as U.S. government bonds.

China is the largest holder of U.S. government debt. Its holdings fell to US$1.182 trillion in April from US$1.188 trillion in May, data from the U.S. Treasury Department showed. China also invests its reserves in other U.S. instruments as well as sovereign debt of other countries.

At the same time, the U.S. dollar index rose slightly by 0.7 percent in June, compared with a sharper gain of 2.3 percent in May, according to Thomson Reuters data.

“The impact of a strengthening U.S. dollar on foreign exchange reserves in June was not as big as in May,” said Wen Bin, chief analyst at China Minsheng Bank.

China’s currency and equity markets had been on edge ahead of Friday, when U.S. tariffs on US$34 billion worth of Chinese goods kicked in. China has retaliated with tariffs on U.S. products of the same value.

The heightened Sino-U.S. trade tensions have sparked concerns of capital outflows from China and threatened to pile more pressure on the Chinese currency. (SD-Agencies)