(Recasts with China's increased purchase of Treasuries; adds details on Japan and Ireland; adds background)
Aug 15 (Reuters) - China purchased the most Treasuries in six years in June, vaulting past Japan as the largest overseas lender to the U.S. government, according to data released by the U.S. Treasury Department on Tuesday.
The world's second biggest economy has steadily ratcheted up its accumulation of U.S. government debt as it has seen a sharp reduction in capital outflows.
In 2016, China spent nearly $320 billion of foreign exchange reserves in an effort to stem the yuan's depreciation against the U.S. dollar.
In the wake of tighter capital controls and a weaker dollar so far this year, China's forex reserves, the world's biggest, have grown in line with its Treasuries holdings.
In June, its reserves increased by $3.2 billion to $3.057 trillion, an eight-month high, while its Treasuries holdings rose to $1.147 trillion, which was the highest level since September when it was $1.157 trillion.
In July, China's currency reserves reached a nine-month peak at $3.081 trillion.
Before China returned to being the largest U.S. overseas lender, Japan had held that spot for eight months.
Japan held $1.091 trillion in U.S. government debt in June, down from $1.111 trillion in May.
Japan's drop in Treasuries holdings was the steepest since November, falling to a level last seen in December.
Ireland was a distant third in holdings of Treasuries, with $302.5 billion in June, up from $295.8 billion in May.
Overall, foreign investors bought $19.73 billion in Treasuries in June, down from $46.37 billion in May, which was the most since June 2015. (Reporting by Daniel Bases and Richard Leong; Editing by Leslie Adler)