UPDATE 2-Brent steady near $111 on U.S. fiscal uncertainty; Japan supports
* New Japan PM makes beating deflation top priority
* U.S. lawmakers revive fiscal talks, deadline looms
* Coming up: U.S. API crude inventory data at 2130 GMT
SINGAPORE, Dec 27 (Reuters) - Brent crude held near $111 a barrel on Thursday as jittery investors stayed on the sidelines with a deadline to avert a U.S. fiscal crisis approaching, while hopes the new Japanese government's policies will spur demand supported prices.
U.S. President Barack Obama and Republican lawmakers resumed talks on Wednesday over the so-called fiscal cliff - tax hikes and spending cuts slated to take effect next week that could push the economy back into recession.
"There is no easy way to resolve the U.S. fiscal cliff, but there should be a compromise at some point and that's what the market is looking for," said Tetsu Emori, a commodity fund manager at Astmax in Tokyo.
Front-month Brent futures slipped 7 cents to $111 per barrel at 0710 GMT, after gaining 2 percent in the previous session. It swung between a low of $110.77 and a high of $111.33 in the Asian hours. U.S. crude gained 10 cents to $91.08, after rising to a nine-week high on Wednesday.
Oil rose in early Asian trade, taking a cue from Japanese stocks, which were at an 18-month high after the country's new prime minister said beating deflation in the world's No. 3 oil consumer, and taming a strong yen, were his top priorities.
"There are hopes that the aggressive fiscal policies will help Japan get out of deflation and, as it is an importer of commodities, that's a positive for oil markets," Emori said.
The government will pursue bold monetary policy, flexible fiscal policy and a growth strategy to encourage private investment, Prime Minister Shinzo Abe said.
The White House and Republicans are still far apart, as hopes for legislation to prevent the U.S. economy from tumbling off the fiscal cliff switch to the Senate.
Democrats control a majority in that chamber but still need some support from Republicans across the aisle for a likely attempt to raise taxes on the wealthy.
Obama will try to revive budget crisis talks - which stalled last week - when he returns to Washington on Thursday after cutting short his Christmas holiday in Hawaii.
"While markets have vacillated between optimism and pessimism over the prospects for a compromise, we expect a deal only at the last minute, with lots of decisions delayed into the New Year and austerity of roughly 2 percent of GDP," Bank of America-Merril Lynch analysts said in their weekly report.
Worries about supplies from the Middle East rose once more after security forces in the United Arab Emirates arrested a cell of UAE and Saudi Arabian citizens which they said was planning to carry out militant attacks in both countries and other states.
The region holds some of the world's largest oil fields and as a result any unrest in the area triggers supply concerns.
Oil futures may rise in the first quarter of 2013 with the global economy showing early signs of a pick-up, and on expectations that the fiscal crisis will be resolved.
Encouraging economic data from China, aggressive action by the European Central Bank to help its economies, and quantitative easing by the U.S. Federal Reserve together brighten the outlook for oil in the near-term.
U.S. crude could rise to $100 per barrel and Brent may test $120 by the end of March, said Emori.
Also supporting prices are expectations that U.S. crude stockpiles may have decreased last week as refiners kept inventory low for year-end tax purposes.
Crude stocks may have dropped by 1.9 million barrels in the week ended Dec 21, a Reuters poll showed on Wednesday.
Inventory data from the American Petroleum Institute will be released on Thursday, while numbers from the Energy Information Administration will be out on Friday, a day later than usual, because of the Christmas holiday.
(Reporting by Ramya Venugopal; Editing by Joseph Radford and Daniel Magnowski)