Treasury said Thursday in its monthly international capital report that China, the biggest U.S. creditor, bought $3 billion worth of Treasury debt in July, bringing its total to $847 billion. July marked the first month since April that China bought more Treasurys than it sold.

The second-biggest lender to the United States, Japan, continues to close the gap with China. Japan expanded its purchases of U.S. bonds for the third straight month, adding $17 billion worth of Treasurys to its stash, now worth $821 billion.

All told, foreigners bought a net $44 billion worth of U.S. long-term securities, their biggest purchase in three months.

The news comes at a time when the Chinese have been diversifying their massive foreign reserve holdings, currently held primarily in dollars. Chinese purchases of other assets, notably those denominated in yen, have roiled the markets in recent months.

At the same time, weakening growth prospects in the large advanced economies have brought interest rates down sharply. This has quieted the long-running debate over the prospect that lenders such as China will simply back away from the U.S. bond markets and provoke a debilitating spike in U.S. borrowing costs — though some sages warn we shouldn’t take solace in this calm.

In any case, a rising U.S. trade deficit at a time of high unemployment has some observers warning that trade tensions can only rise, as nations struggling with weak domestic demand try to export their way out of their troubles.

As usual, the most prominent battle stands to be with China, with its huge trade surplus with the United States and its notoriously undervalued currency.

Treasury Secretary Tim Geithner will say Thursday before the House Ways and Means Committee that the administration is examining questions including how it might prod China to allow the value of the renminbi to rise more quickly.