China reduced its holdings in U.S. Treasury securities by $36.5 billion in August for the first time, after four straight months of net purchases, said the U.S. Treasury Department.

China retained its position as the largest foreign holder of U.S. Treasury securities, with $1.137 trillion in its portfolio.

China's sell-off comes amid proliferating worries about safety of the U.S. dollar assets due to growing indebtedness of the U.S. Government and the deteriorating health of the U.S. economy.

The country is also seeking to diversify the risks. For example, China in August bought a net 178.9 billion yen of Japanese government debt, marking the first net purchase since October 2010.

Economists, however, believe the U.S. Treasury securities remain a relatively liquid and safe option for China since financial uncertainties are also hanging over Japanese and European financial markets.

Zhao Qingming, a researcher with China Construction Bank, said a more permanent solution is to curb increases in foreign exchange reserves and redress trade imbalance.