China increased its holdings in U.S. Treasury securities by $8 billion in July for the fourth straight month, after five consecutive months of decline, said the U.S. Treasury Department.

China retained its position as the largest foreign holder of U.S. Treasury securities, with $1.1735 trillion in its portfolio.

The buying came amid one of the biggest bullish sprees in the Treasury market due to worries about global growth and the euro zone's debt crisis.

Japan, the second largest foreign holder, boosted its holdings by $3.8 billion to a record high of $914.8 billion. Overall foreign holdings stood at $4.478 trillion at the end of July.

A compromise deal to raise the U.S. debt ceiling has soothed default worries, but fears are growing about the safety of China's holdings due to the poor health of the U.S. economy.

Andy Xie, an independent economist and a director at Rosetta Stone Advisors Ltd., said China should buy more U.S. equities, instead of Treasury securities.

"The U.S. stock market can be a credible alternative," he said. "U.S. companies are reporting strong earnings and they are selling a lot to emerging markets. Even though U.S. stocks aren't cheap by historical standards, they are a better investment relative to Treasury securities."

Guo Tianyong, Director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics, said a more permanent solution is to diversify holdings of foreign exchange reserves, and at the same time push forward internationalization of the yuan to wean off reliance on the U.S. dollar.