UPDATE 8-Brent oil drops on U.S. government shutdown
* U.S. shutdown starts after budget talks fail
* Weak China manufacturing data adds to economic worries
* Iran to meet 6 world powers this month for nuclear talks
* Coming up: API data at 4:30 p.m. EDT, EIA data Wednesday
(Adds details on Obama speech, new quote. Updates prices.)
NEW YORK, Oct 1 (Reuters) - Brent oil fell to its lowest level in nearly two months on Tuesday, following sharp losses in other commodities, on worries that a shutdown of the U.S. government will crimp demand in the world's largest oil consumer.
The U.S. government began a partial shutdown on Tuesday for the first time in 17 years. The shutdown potentially puts nearly a million workers on unpaid leave, closes national parks and stalls medical research projects.
A speech by President Barack Obama blaming the Republican-led House of Representatives for the government shutdown did little to support markets. U.S. Republican leaders have suggested passing a series of small funding bills to reopen some Federal agencies and programs but markets were still shaken.
"The market continues to retreat until it figures out what this shutdown means," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.
If U.S. oil prices fall to $100 per barrel, "then we'll see if there are enough worries about economic growth to drive us lower," he added.
Gold, traditionally a safe haven in uncertain times, slid more than 3 percent. Copper fell by its most in one week. The Thomson Reuters-Jefferies CRB index, a bellwether for commodities, was down 0.79 percent at its lowest level since Aug. 8.
U.S. stocks were modestly higher. The Dow Jones Industrial Average was last up about a half a percent.
Analysts expect that a swift resolution will limit the downside in oil prices but both U.S. and Brent crude oil were each down more than 1 percent in late afternoon trading.
Brent crude was trading $1.30 per barrel lower at $107.07 at 1:56 p.m. EDT (1856 GMT), after dropping to a low of$106.81. U.S. crude oil was last trading $1.02 lower at $101.31, after dropping to a low of $101.06.
U.S. gasoline futures dropped to their lowest level since November 2012 at $2.5723 a gallon and were last trading around $2.58.
Oil has come under downward pressure in the past month as supply has improved, with Libya increasing output and tensions easing over Syria.
In China, weaker-than-expected growth in the manufacturing sector in September added to concerns that a nascent recovery in the world's second-largest economy might be foundering.
U.S. manufacturing data was strong and could help put a floor under prices, but it is a backward looking indicator, Lynch said.
"What's happening is still the shut down and you'll have something like one million people without paychecks," he said.
Signs of a thaw in relations between the United States and Iran also weighed on oil prices after U.S. President Barack Obama and new Iranian President Hassan Rouhani spoke by telephone last week.
The world's six major powers will meet Iranian officials in Geneva on Oct. 15-16 to discuss Iran's nuclear program.
Expectations that crude oil inventories rose last week also put downward pressure on the market, McGillian said.
The U.S. Energy Information Administration is expected to show that U.S. commercial crude oil inventories rose by 2.3 million barrels and that gasoline stockpiles fell, according to a preliminary Reuters poll.
The agency said it has enough resources to operate to around Oct. 11 even with the government shutdown.
The American Petroleum Institute is set to release oil inventory data at 4:30 p.m. on Tuesday.
(Additional reporting by Peg Mackey in London and Florence Tan in Singapore; Editing by William Hardy, Alden Bentley and Bob Burgdorfer)