UPDATE 1-Brent rises toward $108 from 3-mth low; Cyprus caps gains
* Cyprus rejects bailout terms, risks financial meltdown
* U.S. Fed policy decision eyed for stimulus fate
* Coming up: Weekly EIA petroleum report; 1430 GMT
SINGAPORE, March 20 (Reuters) - Brent crude rose toward $108 a barrel on Wednesday, recovering from a three-month low hit in the previous session, on hopes that a deal to bail out Cyprus could be reached although the uncertainty kept a lid on prices.
Cyprus's parliament voted against a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to save the latest casualty of the euro zone debt crisis into disarray.
"People are a bit wary about selling down too far as a compromise will probably occur even if it takes days or weeks to achieve," said Ric Spooner, chief markets analyst at CMC Markets in Sydney.
"A lot of people believe that the ultimate resolution to this current situation will involve the EU financial ministers backing down a bit."
Brent crude for May delivery rose 50 cents to $107.95 a barrel by 0427 GMT after a near 2 percent drop to a three-month low in the previous session. The price fall was the largest for front-month Brent since November.
U.S. crude for April delivery was up 24 cents to $92.40 after a 1.7 percent loss on Tuesday, the biggest daily fall since February.
But gains are expected to be capped by the uncertainty about Cyprus' financial future that has revived fears about the stability of the euro zone.
The European Central Bank tried to calm markets on Tuesday by saying it was committed to providing liquidity within certain limits, even after it threatened to end emergency lending assistance for teetering Cypriot banks.
The assurance did little to lift the euro which remained near four-month lows against the U.S. dollar in Asia.
"Sentiment is likely to remain negative towards the euro area, its bond markets and financial sector," ANZ analysts said in a note. "This points to higher bond spreads, further weakness in the currency and weaker equity markets - a negative for commodities prices."
In the United States, the Federal Reserve will conclude a policy meeting later on Wednesday that could provide some clues on whether it will scale back its accommodative monetary stance.
"The Fed is unlikely to start winding back stimulus until the economy is improving at a good clip," CMC's Spooner said.
Any signs of a tighter monetary policy could strengthen the U.S. dollar, a negative for dollar-denominated commodities.
Investors are also eyeing weekly oil inventory data from the U.S. Energy Information Administration for demand cues at the world's largest oil consumer.
U.S. fuel stocks data released by industry group the American Petroleum Institute (API) late on Tuesday showed U.S. crude stocks fell by 413,000 barrels last week against analysts' expectations for a 2 million barrel rise.
(Editing by Himani Sarkar)