UPDATE 6-Brent edges up but heads for sharp loss for the week
* German business morale increases, outlook improves
* Brent, U.S. crude on track for 3 percent losses for week
* Coming Up: CFTC positions data 3:30 EST Friday
(Recasts with updated prices, market activity; changes dateline, pvs LONDON)
NEW YORK, Feb 22 (Reuters) - Brent crude prices edged up on Friday on signs of improving German business morale, but oil prices remained on track for a weekly drop of more than 3 percent.
German business morale increased in February at its fastest pace in more than two years, the Munich-based Ifo think tank said, pointing to a rebound in Europe's largest economy after a dismal end to 2012.
U.S. crude seesawed near flat, following its own two-day swoon and also on pace to post a 3 percent drop for the week.
Slides of 3 percent would be the largest weekly percentage drops in 2013 for Brent and U.S. futures.
Brent fell nearly 2 percent on Thursday, its steepest drop since November, during a two-day sell-off sparked by worries that the U.S. Federal Reserve could wind down its bond buying program earlier than expected and that Saudi Arabia might raise its oil output.
Weak economic data in the U.S. and Europe on Thursday added to concerns that the first-quarter 2013 rally was overdone.
A report from the European Commission on Friday forecasting that the euro zone economy will contract again in 2013 and caution ahead of this weekend's Italian election weighed on the euro, which fell for a third straight session, and helped limit oil's price gains.
"With the equity markets focused more on German business confidence than downward revisions to Euro Zone economic forecasts, the petroleum markets are seeing at least a limited bounce after the Wednesday-Thursday drop," Tim Evans, energy futures specialist at Citi Futures said in a research note.
"The height of the bounce - whether today or into next week - will provide an indication of whether oil market bullish sentiment is resilient or whether further urgent long liquidation is on tap," Evans added.
Brent April crude rose 37 cents to $113.90 a barrel by 11:54 a.m. EST (1654 GMT), after jumping early to a session high of $114.79.
U.S. April crude was down 10 cents at $92.74 a barrel, having slipped to $92.44 during the session, the lowest price since early January.
U.S. March RBOB gasoline futures were up nearly 2 cents and March heating oil seesawed near unchanged.
The March refined products contracts, due to expire next week, were supported by government data released on Thursday showing inventories fell more than expected last week.
Oil and equity markets felt pressure this week after minutes from the U.S. Federal Reserve's most recent policy meeting suggested the central bank is re-examining its monetary policy.
The Fed's bond buying and low interest rate policy have increased liquidity and fueled demand for riskier assets such as oil.
Concerns that impending sharp automatic U.S. spending cuts due to take effect on March 1 also are beginning to weigh on oil and equities markets, oil analysts and brokers said.
DISPUTE OVER IRAN'S NUCLEAR PROGRAM
Tension between the West and Iran ahead of a resumption of talks on Tehran's controversial nuclear program next week continued to lend support for oil.
Six world powers and Iran will meet for the first time in eight months on Feb. 26 to try to break a stalemate over the nuclear program, but analysts expect little progress in defusing the dispute over whether Iran is attempting to develop nuclear weapons capability.
The U.N. International Atomic Energy Agency (IAEA) said on Thursday that Iran has installed advanced centrifuges at its main uranium enrichment plant and Tehran may face more sanctions as U.S. lawmakers craft a bill to stop the European Central Bank from handling business from the Iranian government.
(Reporting by Robert Gibbons in New York, Dasha Afanasieva in London and Florence Tan in Singapore)