UPDATE 1-Bair warns of "dangerous game" in U.S. debt talks

* FDIC's Bair says prolonged talks could spook markets

* Says fears of default could raise U.S. borrowing costs
(Adds details of debt talks)

WASHINGTON, June 30 (Reuters) - U.S. bank regulator Sheila
Bair on Thursday said lawmakers are playing a "dangerous game"
by raising the possibility that the U.S. debt limit will not be
raised by August.

Bair, the outgoing chairman of the Federal Deposit
Insurance Corp, said that markets could be spooked before that
date if they are not convinced the debt limit will be raised,
which could raise the U.S. government's borrowing costs.

"Why even go there? Why even flirt with it?," she told the
Senate Banking Committee on Thursday.

Congress must raise the $14.3 trillion debt ceiling by Aug.
2 to avoid a default that could push the United States back
into recession and send financial markets plummeting.

There has been no progress since talks collapsed last week
over tax increases Democrats want to include in a spending-cut
package that would make it easier for lawmakers to sign off on
further borrowing.

The White House believes a deal needs to be in place by
July 22 to give Congress enough time to pass it, according to
Democratic officials familiar with the talks. For more see
[ID:nN1E75T0GK].

Budget deficits in recent years have hovered near their
highest levels relative to the size of the economy since World
War Two. Experts warn that the United States could face a
Greek-style crisis if it does not slow the growth of its debt.
(Reporting by Dave Clarke; Editing by James Dalgleish)