CHINA is studying the possibility of investing a portion of its US$3.4 trillion in foreign-exchange reserves in US real estate, two people with direct knowledge of the situation have said.

The State Administration of Foreign Exchange began the study after seeing signs of a recovery in the US property market, the people said. China may acquire properties, invest in real estate funds or buy stakes in property companies, they said. The safety of the investments will be the top priority, said the people, who didn't elaborate on a timetable or other details.

China has set up an operation in New York to make alternative investments in the US, an effort by SAFE to diversify away from US government debt, the Wall Street Journal reported last week, citing people it didn't identify.

Prices for single-family homes rose in 89 percent of US cities in the first quarter as the housing market extended its recovery following a five-year slump. The median sales price rose in 133 of 150 metropolitan areas measured from 74 a year earlier, the National Association of Realtors said in a report on May 9.

"In the long run it should be a good opportunity as the US property market is gradually rebounding," said Frank Chen, Shanghai-based head of China research at CBRE Group Inc. "It will help diversify the foreign reserves' investment portfolio. Properties such as office building have stable yields, which match its investment strategies."

China Investment Corp, the nation's sovereign wealth fund set up in 2007 to seek higher returns on part of the reserves, is adding stable-return assets, including infrastructure and real estate, as it cuts an "over-reliance" on US debt, then-Chairman Lou Jiwei said in Hong Kong in January. Lou was named finance minister in March.

CIC bought Winchester House, leased by Deutsche Bank AG for its City of London headquarters, from KanAm Grund KAG, the seller said in November.