Canadian investors bought $5.4 billion of foreign securities in June, while foreigners ended a nine-month buying spree by cutting holdings of Canadian securities by $2.1 billion, Statistics Canada said today.

Investment was spread across all classes of securities with foreign bonds receiving the most at $2.3 billion. More than three-quarters of the investment in foreign bonds went into U.S. treasuries, with the rest going into overseas bonds.

The statistics agency suggested that the interest rate differential between Canada and the U.S. may have made American securities more attractive.

Short-term rates in the U.S., increased again in June, to 2.97% from 2.84% in May.

Canadian short-term rates remained relatively steady increasing only 2 basis points to 2.48%.

Canadian purchases of foreign money market paper reached a record high of $1.7 billion.

In the second quarter, Canadians bought $9.1 billion in foreign securities, the highest level on a quarterly basis in over three years.

In the year to date, Canadian investors have bought $16.0 billion worth in foreign securities compared to $7.1 billion over the same period last year and $18.5 billion for all of 2004.

The federal budget in February eliminated foreign content limits in tax-deferred Canadian investment vehicles.

Foreign investors reduced their holdings of Canadian debt in June. After buying $2.6 billion in Canadian bonds in May, they reduced their holdings by $1.2 billion in June.

That was the largest sell-off since February 2004.

In the second quarter of this year, foreign investors bought $1.2 billion in Canadian bonds, well below normal levels.

So far this year, foreigners have acquired only $1.9 billion in Canadian bonds, compared to purchases of $16.1 billion in 2003 and $6.7 billion in 2004 over the same period.

Foreign investors also sold $447 million worth of Canadian equities in June.