UPDATE 1-Brent rebounds to above $112 on Bernanke, Italy debt sale
* Brent headed for worst month since October
* U.S. oil set to see first monthly drop in four
* Caution ahead of looming deep U.S. spending cuts
* Coming Up: US Q4 GDP; 1330 GMT
(Adds analyst comment, updates prices)
SINGAPORE, Feb 28 (Reuters) - Brent crude rose above $112 a barrel on Thursday after Federal Reserve Chairman Ben Bernanke reassured markets of his commitment to economic stimulus while strong demand for Italian debt calmed worries over its political crisis.
Investors also picked up Brent after the price fell to one-month lows in the previous session, although many exercised caution ahead of looming steep spending cuts in the United States that could derail its nascent economic recovery and dent fuel demand from the world's top oil user.
Without a deal from the White House and Republicans to prevent it, $85 billion will be slashed from the U.S. budget starting on Friday, which President Barack Obama warned could shave at least 0.6 percentage points off economic growth.
"For the moment it looks like the economy continues to keep chugging away and we'll probably see anything between 2, maybe 2.5 percent growth in the economy this year," said Jim Ritterbusch, president of Illinois-based consultancy Ritterbusch & Associates.
"At these current growth projections, the economy is not growing fast enough to absorb all the surplus oil on the market, so we still have some ways to go with the greenshoots we are seeing now."
Brent crude for April delivery climbed 25 cents to $112.12 a barrel by 0438 GMT, after slipping to as low as $111.65 on Wednesday, its weakest since Jan. 22.
The benchmark crude is down nearly 3 percent for February, on track for its steepest monthly drop since October.
U.S. oil rose 26 cents to $93.02, but was on track for a more than 4 percent drop this month, after three straight monthly gains.
Appearing before a congressional panel for a second straight day on Wednesday, Bernanke said it may take about three more years before the U.S. jobless rate falls to 6 percent, the top of the Fed's long-term forecast range, from 7.9 percent currently.
That suggests the U.S. central bank could maintain its current bond-buying strategy to support the U.S. economy.
"After displaying the advantages of the Fed's monetary policy, Bernanke demonstrated that the (benefit) of the $85 billion-a-month bond buying program outweighs the costs," Miguel Audencial, sales trader at CMC Markets, said in a note to clients.
Despite Bernanke's reassurance, investors remain cautious over the prospect of a dramatic increase in U.S. oil demand, with inventories of crude oil rising for a sixth straight week last week.
"While confidence is high, there are still risks present. Negative political news from Italy may provide headwinds, while the looming 1 March deadline for the U.S. sequester could trigger $85 billion of across-the-board budget cuts," said Miguel Audencial, a sales trader with Sydney-based CMC Markets.
Solid demand for Italian debt also helped revive appetite for riskier assets from oil to equities, providing some relief to investors worried about a political deadlock in Rome.
But Ritterbusch said the relief could prove fleeting.
"In Europe, we really don't see any clear signs of a sustained recovery, it's just been more of the same really, and I don't see this changing anytime soon," Ritterbusch said, adding Brent could pull back to $110 if the euro weakens.
Brent hit nine-month highs above $119 in early February but has traded below that level since on concerns the global economic recovery may take longer than thought.
But continuing tensions over Iran's nuclear program helped keep a floor under prices.
On Wednesday, Iran gave an upbeat assessment of two-day talks with six world powers - the United States, France, Russia, Britain, Germany and China - that ended with an agreement to meet again in Istanbul in March.
(Editing by Manolo Serapio Jr. and Himani Sarkar)