July 25, 2011 / 12:40 PM / 9 years ago

UPDATE 1-COMMODITIES-Gold hits record, oil slides on U.S. debt

* Gold seen rising further after all-time high of $1,622.49

* No U.S. debt deal yet ahead of Aug. 2 deadline

* Oil falls more than $1; copper, corn also weaker (Updates throughout)

By Barbara Lewis

LONDON, July 25 (Reuters) - Gold surged to another record high, while oil and other commodities fell on Monday as the countdown for the United States to reach a debt deal or face a disastrous default drove investors into safer assets.

U.S. lawmakers at the weekend missed a self-imposed time limit to come up with a plan to cut the U.S. deficit, a necessary step before the debt ceiling can be raised.

Further talks were planned for Monday, however, and traders said the conviction the world’s biggest economy had no choice but to find an answer before an Aug. 2 deadline should curb the extent of any market sell-off.

“There’s no doubt we will get a solution,” said Rob Montefusco, oil trader at Sucden Financial. “But the markets are nervous, and there’s not a great deal of volume going through.”

Uncertainty lifted gold to above $1,620 an ounce, the fifth record high for bullion in less than two weeks. It has hit record highs in each of the last five quarters.

Spot gold , which has risen nearly 14 percent so far this year, climbed more than 1 percent to a record $1,622.49 an ounce, before easing to $1,616.89 by 1210 GMT.

The U.S. dollar dropped to a four-month low against the yen and fell nearly 2 percent against the Swiss franc .

Riskier assets rallied last week after European leaders agreed a second rescue package for debt-stricken Greece.

“The jubilant buying of risk assets, which was on display last week, will be placed firmly on hold until an agreement on the U.S. debt ceiling is reached,” said Tim Waterer, senior foreign exchange dealer for CMC Markets.

BIGGEST BUYERS CAUSE CONCERN

A weakened dollar can support dollar-denominated commodities, which become cheaper for non-dollar buyers, but any support has been countered by concerns about the fragility of the world’s largest economy and the biggest oil consumer.

China, the world’s biggest buyer of commodities and second-biggest user of oil, has also shown signs of weakness.

Its factory sector shrank for the first time in a year, according to data last week.

The news weighed on a range of industrial commodities, although many analysts said the raw materials bull story was still largely intact as low interest rates left many investors with relatively few options for gaining returns.

Hedge funds and other large investors increased their bets on high crude prices for a third straight week up to July 19, the Commodity Futures Trading Commission said on Friday.

U.S. crude CLc1 fell 89 cents to $98.98 by 1158 GMT, after hitting a six-week high on Friday. Brent crude LCOc1 dropped $1.35 to $117.32 a barrel.

Three-month copper on the London Metal Exchange eased $11 to $9,664 a tonne, with supply risks helping limit losses.

A strike at Chile’s Escondida mine, the world’s top copper mine, entered its fourth day with no signs of a deal to end a protest that unions are threatening to extend across the country.

U.S. corn and wheat futures fell sharply, dragged lower by forecasts for rain this week in the heat-stricken U.S. Midwest and by concerns over the U.S. debt talks.

Chicago Board of Trade corn for December delivery Cc2, the harvest month contract, fell 1.2 percent to $6.77-3/4 per bushel, well short of a record high near $8 per bushel in early April when old crop U.S. supplies were tight.

Wheat for September delivery Wc1 fell 1 percent to $6.85-1/2 a bushel, reversing Friday’s 2.2 percent gain and following forecasts for rain, which could help crops to recover from a recent heat wave. (Additional reporting by Randy Fabi, Florence Tan and Rujun Shen, Jan Harvey and Nigel Hunt, editing by Jane Baird)

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