Brent rebounds above $114 but eyes largest weekly loss since Dec
* Investors eye debate on Fed bond-buying programme, US budget
* U.S. oil demand nearly 2 pct down in Jan - API
* U.S. crude stockpiles at highest level since last summer - EIA
* Iran moves ahead with nuclear enrichment, defy the West
SINGAPORE, Feb 22 (Reuters) - Brent crude rebounded above $114 a barrel on Friday but stayed on track for its largest weekly loss since early December, as investors focused on a debate in the United States on when it would pull a plug on its stimulus programme.
Brent fell nearly 2 percent on Thursday, its steepest drop since November, during a two-day rout fuelled by worries that the U.S. Federal Reserve could wind down its bond buying programme earlier than expected and that Saudi Arabia could raise its oil output.
Weak economic data out of the United States and the euro zone added to concerns that the global economy is still struggling.
Brent crude for April rose 57 cents to $114.10 a barrel by 0358 GMT while U.S. crude was at $93.32, up 48 cents, after hitting a six-week low in the previous session.
"It's unlikely that the Fed would begin to wind down its QE programme until the U.S. economic growth is improving at a faster rate than currently," said Ric Spooner, chief market analyst at CMC Global Markets in Sydney.
The debate on whether the Fed should tighten its monetary policy continued on Thursday although economic data is still pointing to a tepid recovery, supporting the case for the Fed to maintain its bond-buying programme.
The Fed's asset purchases have resulted in a flood of liquidity that has fed a bid for riskier assets such as oil amid a climate of ultra-low interest rates.
Investors will also watch the U.S. budget debate as President Barack Obama called Republican leaders on Thursday to resume negotiations.
"We still think Brent is toppish and we're not uber optimistic about the U.S. economy," said Jeremy Friesen, a commodities strategist at Societe Generale. "Maybe the market still doesn't appreciate the risk in the March sequester."
The sequester refers to spending cuts across the U.S. government that will take effect on March 1 that could hurt its economy and lead to job losses if the White House and Republicans cannot agree on how to deal with the budget crisis.
U.S. oil data released on Thursday were mostly bearish. Oil demand had fallen by almost 2 percent in January from a year earlier, the American Petroleum Institute said. Crude oil stockpiles rose more than expected to 4.14 million barrels last week, the highest level since July last year.
"I wouldn't be a buyer here because we have some challenges in the near term such as seasonal weak demand," Friesen said.
"If you see a confluence of bearish factors such as fiscal cuts in the U.S., concerns about slow growth in Europe and less optimism about sustaining growth in China, then we might see prices dropping to $100."
Oil prices also gained support from rising tensions between the West and Iran ahead of a resumption of talks next week. The U.N. nuclear watchdog said Iran has begun installing advanced centrifuges at its main uranium enrichment plant.
Iran could face further sanctions as U.S. lawmakers are crafting a bill designed to stop the European Central Bank from handling business from the Iranian government.
(Editing by Miral Fahmy)