By Luke Pachymuthu SINGAPORE (Reuters) - Brent crude slipped under $96 a barrel on Wednesday, staying close to 17-month lows hit the previous session, as worries over Spain's deep borrowing costs lingered ahead of the outcome of the U.S. Federal Reserve's policy meeting. Oil hit multi-month lows this week on concern that Spain's soaring bond yields could eventually lead to an international bailout for Madrid, although investors are hoping that any further monetary easing by the U.S. central bank would boost liquidity and support prices. Brent crude has already lost more than a quarter since peaking this year at $128.40 on March 1 as investors focused on the dimming outlook for global fuel demand rather than the supply disruption risks posed by key producer Iran's nuclear programme. Brent oil for August delivery was down 23 cents at $95.53 per barrel by 0152 GMT. It fell as low as $95.40 earlier, near Tuesday's trough of $94.44, its cheapest level since January 10, 2011. U.S. July crude, which expires on Wednesday, slipped 19 cents to $83.84 per barrel. "The focus is still very much on Spain and Spanish bond yields. The levels they're currently at are just unsustainable," said Ric Spooner of CMC Markets. "For the short term, the market is trying to price in the risk of contagion." Spain moved closer to becoming the largest euro zone country yet to be shut out of credit markets after paying a euro era record price to sell short-term debt, with yields on longer-term bonds also at unsustainable levels at above 7 percent. Investors were gearing up for the possibility of the Fed launching more stimulus measures to revive the world's top economy given a recent spate of dismal data, including last month's poor U.S. jobs numbers. "We have seen a clear weakening in the U.S. economy. The strong employment numbers we'd seen earlier look to have been seasonal, so (the Fed) is going to have to look at doing something to improve jobs growth," Spooner said. "The question is will they act now or hold off and use their firepower if or when the euro crisis gets worse?" The U.S. central bank will release a policy statement at the end of its two-day meeting later on Wednesday, followed by a briefing by Chairman Ben Bernanke at 1815 GMT. IRAN TALKS Brent crude ended lower on Tuesday on relief that negotiations in Moscow to defuse the dispute over Iran's nuclear programme led to plans for technical talks to be held in Istanbul on July 3. A deal had not been widely expected and although experts said the sides were far apart, they welcomed the fact talks had at least not broken down completely. If talks do eventually collapse, financial markets could be hit by fears of war and of higher oil prices because Israel has threatened to attack Iranian nuclear sites to prevent Tehran getting the bomb. Tehran denies any such aim and says its nuclear programme is purely for non-military purposes. In U.S. oil stockpiles, a projected drop for a third straight week in crude inventories is likely to support prices. On average, crude stocks are forecast to have dipped 1.1 million barrels in the week to June 15, according to a Reuters survey of 12 analysts. The American Petroleum Institute on Tuesday said domestic crude stocks fell by 550,000 barrels last week, with crude imports down 82,000 barrels per day.

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