Moody's warns of rising risk on U.S. credit rating

NEW YORK (Reuters) - Moody's Investors Service said on Thursday there is a very small but rising risk of a short-lived default by the United States if there is no increase in the statutory debt limit in coming weeks.

In a statement, Moody's said it would put the Aaa U.S. rating on review for a possible downgrade if lawmakers in Washington do not make substantive progress in budget talks by the middle of July.

"Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely," Moody's said.

The ratings agency, whose announcement follows a similar warning from Standard & Poor's earlier this year, said if the debt limit is raised and default avoided, the Aaa rating will be maintained. Still, the rating outlook will depend on the outcome of debt talks in Washington, Moody's said.

"Moody's downgrade adds pressure on Congressional leaders to work hard at reaching an agreement to increase the debt ceiling," said Kathy Lien, director of currency research at GFT Forex in New York.

If a downgrade were to occur, Moody's said it would put the U.S. credit in the Aa range.

(Reporting by Daniel Bases; Editing by James Dalgleish)