* Spanish bond sale, German investor confidence boosts sentiment
* Brent/WTI premium narrows further as Iran, pipeline weigh
* API data shows surprise U.S. stock build, EIA report at 1430 GMT
By Jessica Donati
LONDON, April 18 (Reuters) - Brent crude futures held above $118 on Wednesday as optimism in Germany and a successful Spanish debt auction alleviated fears about the euro zone, but the prospect of further talks between Iran and the West continued to ease pressure on the market.
Worries about the euro zone debt crisis flaring up again were eased after a Spanish bill auction was met with strong demand on Tuesday.
But data on Wednesday showing bad loans at Spanish banks at their highest level since October 1994 underscored the challenges still facing the region's fourth-largest economy.
"Now that we have finished with Greece, the focus is now on Spain. The growth picture is still mixed, with marginally more positive data emerging from the U.S. than the EU," said Thorbjørn Bak Jensen, an oil analyst at Global Risk Management, citing strength in Germany as a sign the outlook for the euro zone was improving.
Brent June crude was down 37 cents at $118.41 a barrel at 0847 GMT, after settling little changed in the previous session. Brent tumbled 2 percent at the start of the week.
U.S. May crude gained 15 cents to $104.35, after settling at its highest close since April 2. The May contract expires on Friday.
The IMF offered a cautiously optimistic view on global growth, which it said is slowly improving as the U.S. recovery gains traction and dangers from Europe recede.
"Traders' risk appetite improved after the successful debt auction, IMF increasing global growth forecast and good data from Germany," said Natalie Robertson, an analyst at ANZ.
Brent's premium to U.S. crude fell below $14 a barrel as investors continued to price in news about a pipeline reversal in the U.S. and the prospect of further talks between six world powers and Iran.
Another meeting is expected to take place next month, after negotiators said talks at the weekend had been constructive.
"The main increase in oil prices between January and April was explained by tension in Iran. Prices are now moving down the same way as talks about setting up a new meeting with Iran are having the opposite effect," Bak Jensen said.
Investors were also still pricing in news early this week the Seaway pipeline's crude oil flow may be reversed towards the Gulf Coast as early as mid-May. The reversal is expected to help alleviate a supply glut in the United States, where crude oil stocks have been building up on the West Coast.
U.S. inventories have jumped over 21 million barrels over the past four weeks and the bulk of the stock build was concentrated on the West Coast, a weekly report from industry group the American Petroleum Institute said on Tuesday.
In contrast, there was little change in Gulf Coast inventories, and a drop in supplies on the East Coast the report showed.