March 20, 2013 / 4:51 AM / 5 years ago

UPDATE 2-Brent rises toward $108 from 3-mth low; Cyprus caps gains

* U.S. central bank likely to keep stimulus programme

* Cyprus in Russia to secure loan agreement

* Cyprus rejected bailout terms on Tuesday, risks financial meltdown

* Coming up: Weekly EIA petroleum report; 1430 GMT (Adds Fed, Cyprus, updates prices)

By Florence Tan

SINGAPORE, March 20 (Reuters) - Brent crude rose above $108 a barrel on Wednesday, recovering from a three-month low hit in the previous session, on hopes the United States would continue with its stimulus programme and that Europe would reach a last-minute deal to bail out Cyprus.

Cyprus’ parliament voted against a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to save the latest casualty of the euro zone debt crisis into disarray. Cypriot Finance Minister is in Moscow to secure a loan agreement with Russia to prevent a financial meltdown.

Brent crude for May delivery rose 66 cents to $108.11 a barrel by 0754 GMT after a near 2 percent drop to a three-month low in the previous session. The price fall was the largest for front-month Brent since November.

U.S. crude for April delivery was up 39 cents to $92.55 after a 1.7 percent loss on Tuesday, the biggest daily fall since February.

“People are a bit wary about selling down too far as a compromise will probably occur even if it takes days or weeks to achieve,” said Ric Spooner, chief markets analyst at CMC Markets in Sydney, referring to the stand-off between Cyprus and the European Union on the bailout plan.

“A lot of people believe that the ultimate resolution to this current situation will involve the EU financial ministers backing down a bit.”

But market gains were capped by the uncertainty about Cyprus’ financial future that has revived fears about the stability of the euro zone.

The European Central Bank tried to calm markets on Tuesday by saying it was committed to providing liquidity within certain limits, even after it threatened to end emergency lending assistance for teetering Cypriot banks.

The assurance did little to lift the euro which remained near four-month lows against the U.S. dollar in Asia.

“Sentiment is likely to remain negative towards the euro area, its bond markets and financial sector,” ANZ analysts said in a note. “This points to higher bond spreads, further weakness in the currency and weaker equity markets - a negative for commodities prices.”

In the United States, the Federal Reserve looks set to sustain its $85 billion monthly bond-buying stimulus despite improving U.S. economic data as a new flare-up in the euro zone crisis reminds officials of a risky global environment.

“The Fed is unlikely to start winding back stimulus until the economy is improving at a good clip,” CMC’s Spooner said.

Any signs of a tighter monetary policy could strengthen the U.S. dollar, a negative for dollar-denominated commodities.

Investors are also eyeing weekly oil inventory data from the U.S. Energy Information Administration for demand cues at the world’s largest oil consumer.

U.S. fuel stocks data released by industry group the American Petroleum Institute (API) late on Tuesday showed U.S. crude stocks fell by 413,000 barrels last week against analysts’ expectations for a 2 million barrel rise. (Editing by Himani Sarkar)

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