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Washington • Moody's Investors Service is warning the U.S. government that it could lose its sterling debt rating if Congress and the Obama administration don't reach an agreement soon to raise the nation's borrowing limit.

A credit rating agency said Thursday that if the parties fail to make progress "in coming weeks," it would put the U.S. rating under review for a possible downgrade. That's because there's a "very small but rising risk" that the government will default on its debts.

Moody's unexpected move follows by six weeks a decision by another major ratings firm, Standard & Poor's, to lower its outlook for the Aaa rating on United States debt — but not the rating itself — to negative from stable. Moody's cautionary note was more pointed in tying a potential reduction in the rating to current budget politics, and urging a resolution weeks sooner than the White House and Congressional leaders were planning.

The U.S. government hit its $14.3 trillion borrowing limit on May 16. The debt limit is the amount the government can borrow to help finance its operations.

A lower credit rating could ripple through the U.S. economy and ultimately hurt consumers. That's because many loans, including mortgages, tend to follow yields on U.S. Treasury bonds, which would be impacted by a downgrade. So interest rates could rise at a time when the recovery is again slowing.

Moody's also warned that the government could face a downgrade if it fails to come up with a long-term plan to reduce the country's deficit. The federal budget deficit is on pace to exceed $1 trillion for the third straight year.

Moody's said it had expected strong political debate over the topic. But the entrenchment of both sides is greater than it anticipated.

President Barack Obama and Republican lawmakers have said the country needs to reduce its annual deficits. But they are at odds over how to do it. Republicans insist on cutting spending without tax increases. Democrats say any plan should include both.

Obama met privately with both parties this week to discuss the issue, but no progress has been made.

Time is growing short. The Treasury Department has said the U.S. government is at risk of a default if it does not raise the borrowing limit by Aug. 2. That is when the Treasury department has said it will run out of accounting maneuvers to meet the nation's financial obligations without breaching the debt limit, which would provoke a crisis, or even a default.

Treasury Secretary Tim Geithner says he is confident a debt crisis will be averted.

Geithner met privately with House freshmen in the Capitol on Thursday to discuss the partisan standoff. The session lasted nearly an hour, and Geithner told reporters afterward that he is confident that a default crisis will be avoided and that the two sides will reach an accord on a long-term fiscal plan.

Freshman Republicans emerging from the meeting say they told Geithner they want Obama to present a specific plan for curbing the government's debt.

"The heightened polarization over the debt limit has increased the odds of a short-lived default" by the government, Moody's said in its report.

House Republicans have said they will not agree to increase the debt limit without parallel action on spending cuts of an even greater amount. The debt limit would have to be raised $2.4 trillion to carry the government through 2012 and that year's elections.

Moody's action comes a day after House Republican leaders engineered a vote on Tuesday evening in which the House voted overwhelmingly not to increase the debt limit. They said that was their way of proving to Democrats that it could not pass without spending cuts attached, but the Democrats countered that they were risking an adverse market reaction by staging the vote, knowing it would fail. — The numbers The cost of borrowing

$14.3 T

The U.S. government borrowinglimit, which it hit May 16. $1 T

Federal deficit is on pace to exceed $1 trillion for the third straight year.