(Reuters) - Oil futures rose above $116 a barrel on Thursday as investors awaited a U.S. Federal Reserve announcement, expected to include more stimulus action to bolster the economy of the world's biggest oil buyer.
Brent's front-month October contract, which expires at the end of Thursday's session, rose 10 cents to $116.06 a barrel at 0926 GMT, after a 56-cent gain the previous session.
U.S. crude edged up 16 cents to $97.17 a barrel.
The Fed appeared set to launch a third round of monetary stimulus, known as quantitative easing, on Thursday. It was also expected to signal a weak U.S. economy may warrant ultra-low interest rates for at least another three years.
"It will be a wait and see day until (Fed chairman) Bernanke speaks. There is at least a 50 percent chance that we will see a third quantitative easing," said Filip Petersson, commodity strategist at SEB in Sweden.
"I think we will see a QE 3 but not a strategic release because it would violate the point of them. But I can see the political temptation to do it."
The Fed is expected to release its announcement policy at 1630 GMT on Thursday, at the end of a two-day meeting. Chairman Ben Bernanke will hold a news conference about two hours later.
Markets, including oil, were also settling down "after yesterday's ECB euphoria", and were now waiting for U.S. data, said Rob Montefusco, oil broker at Sucden Financial in London.
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.
"Crude is reacting more to economic data than supply concerns," said Thorbjørn Bak Jensen, oil market analyst at Global Risk Management in Denmark, "Confidence in the EU is back and therefore in oil."
Heightened awareness of risks surrounding the sector in the Middle East, caused by the killing of the U.S. ambassador to Libya and anti-U.S. protests in Libya and Egypt, underpinned prices.
President Barack Obama branded the killing of ambassador Christopher Stevens and three other Americans in the Libyan city of Benghazi on Tuesday night as "outrageous" and vowed to track down the perpetrators.
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.
Higher than expected domestic crude stocks of U.S. capped any rises stemming from supply concerns. Stocks rose unexpectedly by 1.99 million barrels to 359.09 million barrels in the week ended September 7, the Energy Information Administration reported.
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.
