Brent edges down toward $109 ahead of Cyprus bailout vote

* Cyprus to vote on bank deposits levy on Tuesday

* EU urges Cyprus to spare smaller savers from bank levy

* Investors eye Fed policy meeting for QE status

* Coming up: API weekly oil inventories data; 2030 GMT

SINGAPORE, March 19 (Reuters) - Brent eased toward $109 a barrel on Tuesday as investors eyed a Cyprus vote later in the day on a bailout plan that revived concerns about the euro zone debt crisis, although losses were capped by a rosier economic outlook in the United States.

Cyprus will decide on Tuesday whether to go ahead with a controversial plan to impose a levy on bank deposits to secure a $10 billion euro bailout from the European Union. The proposal announced over the weekend broke calm in the euro zone and caused global markets and the euro to tumble on Monday.

The move sparked concerns of a run on banks elsewhere in the euro zone and worries that similar extraordinary measures might be taken if other indebted member states need funding help. Such a scenario would weaken demand for oil from the euro zone.

"It could set a precedent for how Europe is going to go forward and it's a cause of social instability," Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo, said.

Brent crude for May delivery was down 13 cents at$109.38 a barrel by 0306 GMT. It briefly hit a three-month low on Monday before settling 31 cents lower. U.S. crude for April edged up 11 cents to $93.85.

Global markets recovered on Tuesday as confidence was partially restored by news that the Eurogroup decided to give Cyprus more flexibility over a bank levy which is part of the bailout conditions.

In the United States, investors eyed the Federal Reserve's policy meeting for any indication on whether it will scale back its very accommodative monetary stance as the economy is showing signs of improvement. Almost all U.S. states began 2013 with lower unemployment rates than they had at the start of 2012, according to Labor Department data released on Monday.

"It's impossible to stop quantitative easing now because the market is too fragile," Nunan said, adding that terminating the bond-purchase programme will cause markets such as U.S. crude futures to fall.

Investors will also watch for U.S. oil inventories data due on Tuesday and Wednesday for a further fall in crude stocks at oil futures delivery hub Cushing, Oklahoma, that could strengthen West Texas Intermediate (WTI) prices against Brent.

"A Cushing stock draw will raise confidence that the glut in Cushing is alleviated," Nunan said. "The WTI/Brent spread is going to narrow in the long run."

Brent's premium to WTI for May <CL-LCO1=R> is about $15 a barrel, down from more than $20 in February.

U.S. commercial crude stockpiles are expected to have risen 2 million barrels last week amid low refinery runs, a preliminary Reuters poll of analysts showed on Monday.

Distillate inventories likely fell 1.2 million barrels, while gasoline supplies are seen down 2.5 million barrels, the poll showed.

(Editing by Muralikumar Anantharaman)