Brent crude steadies near $116 ahead of Fed decision

Pressure on oil prices from an unexpected rise in U.S. crude stockpiles was offset by geopolitical risks in OPEC member Libya and rising hopes that the euro zone's rescue fund will soon take effect.

Brent's front-month October contract, which expires at the end of Thursday's session, eased seven cents to $115.89 a barrel, after a 56-cent gain the previous session. U.S. crude edged up two cents to $97.03 a barrel.

"There will likely be a boost in oil futures as a result of the decision, if indeed the Fed goes ahead with further quantitative easing," said Victor Shum, a senior partner at oil consultancy Purvin & Gertz in Singapore.

"We also have this killing of the U.S. ambassador to Libya yesterday adding a bit of geopolitical risk to the mix."

The Fed ends its two-day meeting later on Thursday with the policy result expected to be released at 1630 GMT, followed by Chairman Ben Bernanke's news conference about two hours later.

A Reuters poll showed economists raised their bets of a third round of Fed bond buying known as quantitative easing to 65 percent from 60 percent in August.

Oil found support from violent anti-U.S. protests in Libya and Egypt, sparked by a film that attackers said insulted the Prophet Mohammad.

President Barack Obama branded the attack that killed the U.S. ambassador to Libya and three other Americans as "outrageous" and vowed to track down the perpetrators, while ordering a tightening of diplomatic security worldwide.

The U.S. military is moving two Navy destroyers toward the Libyan coast, giving the Obama administration flexibility for any future action against Libyan targets, according to a U.S. official.

Oil also received a lift from the latest development in the euro zone's debt crisis.

Germany's Constitutional Court gave a green light on Wednesday for the country to ratify the euro zone's new bailout fund and budget pact, helping to boost global stocks and the euro currency.

Support from Libya and the euro zone helped offset pressure from an unexpected rise in crude stockpiles in top consumer the United States.

Domestic stocks of U.S. crude rose 1.99 million barrels to 359.09 million barrels in the week ended September 7, the Energy Information Administration reported. Analysts polled by Reuters had forecast a draw of 2.6 million barrels.

"With current levels of demand reasonably covered by capacity, oil doesn't have a lot of room to go up further after rising from the lows of June," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

Brent has rallied more than 30 percent since hitting an 18-month low of $88.49 in late June, driven higher by geopolitical tensions, economic stimulus efforts and supply disruptions.

(Editing by Clarence Fernandez and Himani Sarkar)