* EIA reports decline in U.S. crude inventories
* Cyprus throws bailout into disarray, seeks Russian help
* U.S. Fed to press forward with stimulus program
By Joshua Schneyer
NEW YORK, March 20 Brent crude oil rose above $108 a barrel on Wednesday, recovering from a three-month low, after the U.S. Federal Reserve signalled it would continue its stimulus programs and on optimism that European policymakers can keep a debt crisis in Cyprus from spreading.
The Federal Reserve wrapped up a two-day meeting on Wednesday by pressing forward with its aggressive efforts to stimulate the U.S. economy, saying it would take into account risks posed by its policies but also how much progress it was making lowering unemployment.
Cyprus was seeking a new loan from Russia to avert a financial meltdown, after the island's parliament rejected the terms of a European Union bailout, raising the risk of default and a bank crash.
Brent crude for May rose $1.27 to settle at $108.72 a barrel. It had dropped nearly 2 percent to a three-month low on Tuesday. U.S. crude for April rose 80 cents to $92.96 per barrel.
"Clearly, market players anticipate that an alternative solution will be found for Cyprus," said Carsten Fritsch, analyst at Commerzbank. "Nonetheless, the uncertainty surrounding this issue is likely to continue to keep oil prices in check in the short run."
Oil prices also rose on Wednesday in the hours after the U.S. Energy Information Administration said crude stocks fell by 1.3 million barrels last week, rather than the 2.0 million-barrel increase analysts had expected. The report showed a drop in U.S. crude imports.
"We saw a drawdown in crude, which was a little surprise and would be supportive (for oil prices)," said Phil Flynn, analyst at Price Futures Group in Chicago.
The EIA report also showed declines in U.S. gasoline and distillate fuel stocks, although these were smaller than analysts expected.
On the price charts, Brent faces its first upward resistance point at $108.50, said Olivier Jakob, oil analyst at Petromatrix. Support levels to watch on Wednesday are $107.50 and then 107.00, he said.
The uncertainty about Cyprus's finances has revived concern about the stability of the euro zone and of the downside risks to global economic growth.
The U.S. dollar weakened by 0.3 percent on Wednesday against a basket of foreign currencies. A weaker dollar tends to support the price of oil and other dollar-denominated commodities.
REFILE-Spanish economy expands at 0.7 pct in Q3 amid political deadlock
MADRID, Oct 28 Spain's economy expanded by 0.7 percent in the July to September period on a quarterly basis, according to preliminary data from the National Statistics Institute (INE) on Friday, a slight slowdown from the previous three months.
UPDATE 3-Japan Sept consumer prices fall, weak spending clouds outlook
* BOJ likely to cut price f'casts, stand pat on policy (Adds BOJ's price index)