China just cut its reserves of U.S. debt by the largest amount ever. The move raised speculation that a plunge in U.S. yields has made government securities unattractive. Beijing, whose $2.45 trillion worth of foreign exchange holdings is the world’s largest stockpile of cash, is also increasing its reserves of euro-bonds and Japanese bonds as it trims its dollar holdings.

From June 2009 to June 2010, China hacked its holdings of U.S. debt by $100 billion, or 11 percent, according to Treasury Department data released on Monday. From its May 2009 highpoint of $939.9 billion in U.S. holdings, by June 2010, China’s holdings had fallen to $839.7 billion.

And China is not alone. Asia’s central banks hold around 60 percent of the world’s foreign-exchange reserves and, in recent months, nations such as Malaysia, India and South Korea have followed China’s lead in reducing their holdings of U.S. debt. In June, the International Monetary Fund said that global reserves of dollar-denominated debt have fallen from 62.2 percent of total currency holdings to 61.5 percent.

To compensate for its decrease in U.S. holdings, China has been turning bullish on Europe and Japan. On Tuesday, Bloomberg reported:

The nation has been buying “quite a lot” of European bonds, said Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2.Japan’s Ministry of Finance said August 9 that China bought ¥1.73 trillion (us$20.3 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.”Diversification should be a basic principle,” Yu, president of the China Society of World Economy, said in an interview last week, adding a “top-level Chinese central banker” told him to convey to European policy makers China’s confidence in the region’s economy and currency. “We didn’t sell any European bonds or assets. Instead we bought quite a lot.”

The U.S. is piling up debt at record levels, and has operated under the assumption that China would reliably buy that debt up. After all, Washington calculated, who else would Beijing go to?

Now China has revealed the sobering answer to that question. To understand the implications, read, “New Global Trend: Dump a Dollar, Buy a Euro.” To understand more about the future of the relationship between China and the U.S., read Russia and China in Prophecy.