Hedge funds cut bullish commodity bets by the most in a month as the Federal Reserve warned the U.S. budget impasse may damage the economy, increasing concern about demand just as prices head for the first loss since 2008.

Speculators and money managers decreased net-long positions across 18 U.S. futures and options by 11 percent to 802,817 contracts in the week ended Dec. 11, U.S. Commodity Futures Trading Commission data show. Sugar holdings tumbled 68 percent, the most in five years, and those for wheat dropped to the lowest since June. Wagers on higher crude-oil prices tumbled 21 percent, the most since May.

The Standard & Poor's GSCI Spot Index of 24 raw materials retreated 4.3 percent this quarter, with U.S. lawmakers in a stalemate on how to avoid about $600 billion in tax increases and spending cuts that start next month. The Fed "doesn't have the tools" to counter the risks to the economy should there be no deal, Chairman Ben S. Bernanke said Dec. 12.

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