The United Arab Emirates' central bank has resumed investing in US Treasury bonds because interest rates on them are now reasonable, the bank's governor said on Tuesday.

Gulf Arab oil exporters such as the UAE mainly invest in dollar assets since most peg their currencies to the US dollar and crude oil, priced in dollars, provides most of their budget revenue.

But the UAE central bank said in July, when the risk of a US debt default was unsettling markets, that it did not hold any US Treasuries and that most of its foreign reserves, though denominated in dollars, were invested in non-US assets.

On Tuesday, central bank governor Sultan Nasser al-Suweidi told a news conference marking the UAE's national day that purchases of Treasuries had resumed.

"Now, we do (invest in US Treasuries) because the circumstances have changed. The interest rates are now reasonable," he said.

"It (the volume of investment) is fluctuating depending on what the yield is," he told reporters, but did not give details.

The 10-year Treasury yield hit a record low of 1.72 per cent in September and has since rebounded to around 2.0 per cent.

The central bank's foreign currency assets edged down to a three-month low of Dh199.1 billion ($54.2 billion) in June. But within that total, holdings of foreign securities rose to Dh86 billion in June, the highest level since at least 2007, the latest available data show.

Asked whether the UAE was considering imitating Austria's central bank, which this month signed a deal with China allowing it to invest in Chinese local-currency assets, Saif Hadef al-Shamsi, senior executive director at the UAE central bank's treasury department, said: "Having more places to invest in is always good.

"But the channel is closed. When it is open I can address your question," he told Reuters on the sidelines of the news conference.

Euro crisis

European leaders and the European Central Bank have not asked the UAE, one of the world's top five oil exporters, for help in containing the euro zone debt crisis, Suweidi also said.

Euro zone finance ministers are expected to agree on Tuesday on reforms of their bailout fund, the 440 billion euro European Financial Stability Facility, to expand its effective size through leverage. The EFSF will be able to attract cash from private and public investors to its co-investment funds.

European officials have raised the possibility of China and other cash-rich countries around the world investing, as a way to fight the crisis. But asked whether the UAE had been approached on this issue, Suweidi said: "No, not at all."

"The Europeans need to organise themselves and they will solve their problems. These problems are of a sovereign debt nature and...can be handled over time, they need time," he said.

The central bank said in October it had no exposure to euro zone debt in its reserves and that it only invests in countries and corporates rated AAA, as required by law.

Lending

Suweidi also said the UAE's bank lending growth rate of 4 per cent since the beginning of the year was "good" under current circumstances.

Asked whether he saw any signs of foreign banks scaling down their activities in the UAE, given the headwinds they face in Europe, he said: "Even if they scale down their operations they are free to do so. They will scale down and then return."

The UAE has not felt any direct impact from the euro zone debt crisis so far, said Mohamed Omar Abdulla, undersecretary at Abu Dhabi's Department of Economic Development.

Asked if the debt troubles of Greece were a good opportunity to invest there, he said: "We are discussing (with the Greek embassy) how we can explore the possibility of investing in Greece at this time. We have a team working on this." – Reuters