U.S. assets still safe choice for China -paper

U.S. assets are still a safe investment option for China despite the Federal Reserve's decision to buy a large volume of Treasury debt, a senior government official and economists said in remarks published on Monday.

But China needed to diversify its huge foreign exchange reserves in the long run, they said.

The U.S. central bank announced last week it would buy up to $300 billion worth of longer-term U.S. government debt over the next six months.

The move would have a limited impact on China's foreign exchange in the short term, summarising the view of some domestic experts.

"Currently, it's still relatively safe to choose U.S. dollar (assets) for our forex reserves," the China Business News quoted Sun Xiaoxia, head of the financial department at the Ministry of Finance, as saying.

"Even if we adjust our forex reserves, that's a gradual process," Sun told the paper.

Premier Wen Jiabao said on March 13 that he was worried about China's heavy exposure to the United States. Bankers assume about two-thirds of China's nearly $2 trillion in reserves is parked in dollar assets, primarily U.S. government and other bonds.

Chinese officials make little secret of their concerns that a big budget deficit and the Fed's resort to quantitative easing could undermine the dollar and eventually stoke inflation, ushering in a bear market for bonds that would be costly for China.

Zhang Xiaoji, a division head at the Development Research Centre under the State Council, China's cabinet, told the China Business News that the Fed had taken the initiative more quickly than most Chinese economists had expected.

"Diversified investment is the best way to fend off risks in the forex reserves," Zhang said.

Zhang Wenkui, from the same think tank, said China should buy more raw materials.

BEIJING, March 23 (Reuters)