July 25 (Bloomberg) -- Oil fell for the first time in five days after President Barack Obama and Congress failed to agree on raising the U.S. debt ceiling, boosting concern that the government will default and damage the world's largest economy.

Futures tumbled from a six-week high as Republicans and Democrats prepared dueling plans on how to tackle the country's $14.3 trillion debt and quell fears of a default on Aug. 2. Standard & Poor's has warned there is a 50 percent chance it will lower the U.S. government's AAA credit rating.

"Everything is so focused on the U.S. debt ceiling that there isn't much more to the movement in crude than that," said Matt Smith, a commodities analyst for Summit Energy Services Inc. in Louisville, Kentucky. "We weren't able to push through $100 last week, so unless we see some sort of resolution, we're going to continue to be choppy this week with an emphasis to the downside."

Crude for September delivery dropped 70 cents, or 0.7 percent, to $99.17 a barrel at 11:50 a.m. on the New York Mercantile Exchange. Prices have increased 26 percent in the past year. They touched $100.19 a barrel in intraday trading on July 22, the highest level since June 10.

Brent oil for September settlement fell 81 cents, or 0.7 percent, to $117.86 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract traded at a premium of $18.69 a barrel to U.S. futures, compared with a record close of $22.63 on July 14.

Breakdown in Talks

Any debt-limit increase must pass both the Republican- controlled House and the Democratic-run Senate and be signed by Obama. Democrats have resisted cuts to entitlement programs such as Social Security and Medicare and called for higher taxes, while Republicans have insisted a debt ceiling be accompanied by corresponding spending cuts and no tax increases.

Talks between the two parties broke down on July 22.

"For the financial investors, if the debt issue is not really resolved, they may cut a portion of their risky assets," said Tetsu Emori, a commodity fund manager at Astmax Co. in Tokyo. "Crude oil is a kind of risky asset, so people may cut a part of their portfolio."

Even if Congress raises the limit in time to avert a default, Standard & Poor's might lower the U.S. AAA sovereign credit rating to AA+ with a negative outlook if a deal isn't accompanied by a "credible solution" on the debt burden, it said in a report July 21.

U.S. equities and commodities dropped on the debt concerns.

The Standard & Poor's 500 Index fell from a two-week high, losing 0.4 percent to 1,339.26. The Dow Jones Industrial Average fell 64.07 points, or 0.5 percent, to 12,617.09.

The Standard & Poor's GSCI Index of 24 raw materials dropped 0.8 percent to 696.19 after reaching a six-week high on July 22. Nineteen of the commodities declined.

Greek Downgrade

Oil also fell after Greece's long-term foreign currency debt was cut three steps today by Moody's Investors Service, which said the European Union's bailout of the country will cause substantial losses for investors and amount to a default.

Greece's long-term foreign currency debt was downgraded to Ca, its second-lowest rating, from Caa1, the company said in a statement in London today. Moody's said it will reassess the risk profile of any outstanding or new securities issued by Greece after the debt exchange that's part of the new rescue plan has been completed.

Europe's Crisis

Europe's sovereign-debt crisis, which started in Greece and spread to Portugal before threatening Italy and Spain, reined in oil prices in May and June because of the threat to the European economy and subsequent declines in the euro. A weaker euro curbs the appeal of commodities as an alternative investment.

The euro was little changed today at $1.4356 at 11:52 a.m. in New York from $1.436 on July 22.

Prices may rise as the biggest bet in the oil options market has become a 20 percent increase to $120 by the end of the year as global growth drives demand for raw materials, based on Nymex data compiled by Bloomberg.

The number of contracts held by traders in options to buy New York futures at $120 a barrel in December totaled 45,502 lots on the exchange as of July 21, 4,226 lots more than the next-highest wager, which is for $125. Open interest in the two contracts jumped 29 percent in the past four weeks, according to data compiled by Bloomberg.

Hedge funds raised net-long positions in New York-traded crude by 8 percent to 182,285 in the week ended July 19, according to the Commodity Futures Trading Commission's weekly Commitments of Traders report. Money managers raised bullish bets on Brent crude by 11 percent in the week ended July 19, according to data from ICE Futures Europe.

--With assistance from Ben Sharples in Melbourne, Grant Smith in London, Ayesha Daya and Anthony DiPaola in Dubai and Ann Koh in Singapore. Editors: Richard Stubbe, Charlotte Porter