* Oil rises as investors shrug off US default risk * U.S. crude up 49 cents at $99.69, Brent gains 28 cents to $118.22 * Impasse raises fears of US credit rating downgrade * Weak German, UK data also taken in stride by markets * Coming up: API stocks data (Updates prices, adds quotes) By Simon Falush LONDON, July 26 (Reuters) - Oil prices rose on Tuesday, bolstered by dollar weakness as a political tussle on raising the U.S. debt ceiling persisted, though investors shrugged off fears that a U.S. default would undermine the appetite for riskier assets. U.S. crude oil CLc1 was 49 cents higher at $99.69 a barrel by 1125 GMT after earlier touching a high of $99.80. Brent LCOc1 crude was up 28 cents at $118.22 a barrel, retreating from the day's high of $118.60. The index of the dollar against a basket of currencies was down 0.5 percent . The dollar also hit another all-time low against the Swiss franc , though it recovered slightly in European morning trade. A weaker dollar boosts oil, priced in the U.S. currency, as it makes it more attractive to holders of other currencies. President Barack Obama urged Republican and Democratic leaders to reach a fair compromise on raising the U.S. debt ceiling to avoid default, warning that failure to act could cost jobs and do serious damage to the world's biggest economy. "There is a political circus, and everyone is saying it could be a disaster if the ceiling is not raised, but the market is not pricing in any catastrophic potential," said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland. If the debt ceiling is not raised, the U.S. would not be able to pay bills that include monthly Social Security checks, which may lead to a drop in energy consumption. Still, analysts expect the United States to reach an agreement soon and prices to recover, driven by expectations of steady demand amid reduced global output. Weighing on assets perceived as sensitive to decreasing risk appetite and keeping oil gains in check, Italy's debt auction results showed rising yields, signalling mounting pressure on the country's finances. Jakob at Petromatrix pointed to thin volumes and entrenched ranges, with Brent crude hemmed in between its 100-day moving average of $116.50 and the psychological level of $120 and U.S. crude seeing resistance at the $100 per barrel level. Commerzbank said in a note that low volumes could lead to the breaching of these levels for a short time. "On London's ICE, for example, not even half as many Brent contracts have been traded over the past few days as on average in June," the note said. "Tighter liquidity also leaves prices more likely to fluctuate substantially, so that Brent could well breach the ceiling of its trading range for a short time." DISMAL DATA SHRUGGED OFF Oil and other assets such as base metals and equities that tend to reflect the demand outlook were robust in the face of grim economic data. German consumer sentiment fell more than expected in August to a 10-month low on worries over the Greek debt crisis and high energy prices, a survey showed The UK's second-quarter GDP data showed that the economy barely grew. In the United States, ratings agencies have warned that even if Congress raises the debt ceiling and averts a default, they may still strip the United States of its AAA credit rating if lawmakers fail to agree on deeper long-term budget cuts. Investors will watch weekly oil stocks data from the American Petroleum Institute due later on Tuesday to gauge the country's demand following disappointing macroeconomic data that showed a slowdown in the nation's recovery. U.S. crude oil inventories were forecast to have fallen for the eighth straight week last week as the import level is likely to have leveled off, a preliminary Reuters poll showed ahead of the data. On a longer term outlook, ANZ has cut its forecasts for the third quarter. "We expect oil to consolidate this quarter, with trading likely a tale of two markets - supportive oil-specific fundamentals on the one hand and more bearish macro-economic concerns on the other," the bank said in a note. "We also see some downside risk should geopolitical tension ease." (Additional reporting by Florence Tan in Singapore; Editing by

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