Gulf central banks still regard US Treasuries as a safe investment and the UAE may consider diversifying reserves to include China's yuan, the UAE central bank governor said on Wednesday.

Gulf states, which mostly peg their currencies to the US dollar, are major holders of Treasuries and other US assets, with oil - priced in dollars - their major source of revenue.

Asked whether the UAE was considering changing its policy on buying US government bonds after a bill to increase the United States' debt issuance limit was defeated in Congress, Sultan Nasser al-Suweidi said: 'No, there is no change.'

'For the time being, I do not think there is a strong move in GCC countries following Asian central bank investment policies,' Suweidi told reporters on the sidelines of a financial workshop in the UAE capital.

The UAE central bank re-started purchases of foreign securities in May 2010, after reducing its holdings to almost zero following the 2008 global financial crisis. It held Dh80 billion ($22 billion) worth of foreign paper in March, almost 44 per cent of its total reserves, slightly down from Dh82.1 billion in February, data show.

'It is a treasury department policy. There are guidelines that are reviewed from time to time. If there is a need to move into Treasuries in a bigger way that would be discussed and decided,' Suweidi said.

US lawmakers defeated on Tuesday a bill to raise the $14.3 trillion debt limit without conditions. So far, markets are little concerned by the possibility of default on what is viewed as one of the world's safest investments.

Asian central banks have stepped up purchases of dollar-based foreign reserves to combat currency appreciation and keep exports competitive.

Asked if the UAE, the world's No.3 oil exporter, might consider diversifying reserves into the Chinese yuan, Suweidi said it depended on China relaxing its currency controls.

'It depends on the Chinese themselves because they are not yet prepared to allow the yuan to be a reserve currency,' he said. 'If China relaxed controls then that will go to the investment committee within the treasury department of the central bank and then they will make a decision.'

The UAE is in the final stages of approving a law that will allow the Gulf state to issue its first ever federal sovereign bonds and create a local debt market.-Reuters