China's holdings of American debt fell for the third straight month in January, the U.S. Treasury Department reported Monday.

The trend will likely reinforce worries that the U.S. will have to increase interest rates in order to finance its growing budget deficits.

China trimmed its holdings of U.S. government debt by $5.8 billion US to $889 billion in January. (Associated Press)

China's holdings shrank by $5.8 billion US to $889 billion. China remains the biggest holder of U.S. federal government debt.

The decline comes amid growing tensions between the two nations over the subject of exchange rates. Chinese Premier Wen Jiaboa on Sunday rejected American pressure to have the Chinese currency rise in value against the dollar.

The U.S. has said that amounts to a kind of trade protectionism because an artificially low yuan makes American goods more expensive for Chinese importers. It would also make Chinese goods more expensive for Americans and help reduce the huge trade gap between the two countries.

Japan, the second-largest foreign holder of U.S. government debt, also trimmed its holdings, but by a much smaller $300 million to $765.4 billion.

The Treasury Department also reported that the amount of long-term U.S. debt — both government and corporate — that foreigners bought exceeded sales by $19.1 billion in January, a drop of $24.8 billion, and the biggest one-month decline on record.

It said total foreign holdings of U.S. government securities grew by $17 billion in January to $3.71 trillion. While China and Japan decreased their holdings, oil-exporting countries boosted theirs by $11 billion to $218.4 billion, and Great Britain $28 billion to $206 billion.

The U.S. federal budget deficit hit an all-time high of $1.4 trillion in 2009 and President Barack Obama's administration is projecting that this year's deficit will climb even higher, to $1.56 trillion.

With files from The Associated Press