* Expectations Fed to announce stimulus action supportive * Anti-U.S. protests in Middle East spread to Yemen, Iraq * Brent Oct crude contract expiry on Thursday FREE GUIDES AND REPORTS FROM DIANOMIADVERTISEMENT Oil Trading Professional Secrets: How to Profit from Oil Download FREE Report * Coming up: Fed policy statement 12:30 p.m. EDT Thursday (Recasts, updates prices, market activity) By Robert Gibbons NEW YORK, Sept 13 (Reuters) - Oil prices rose on Thursday, pushing to four-month highs in volatile trading, on expectations the U.S. Federal Reserve will announce more monetary easing and as protests against the United States spread in the Middle East. The October Brent contract headed to expiration on Thursday, helping keep the trading trajectory choppy. Demonstrators attacked U.S. embassies in Yemen and Egypt in protest over a film produced in the United States that demonstrators consider blasphemous to Islam as American warships headed to Libya after the U.S. ambassador was killed this week in related violence. An Iraqi militia that carried out some of the most prominent attacks on foreigners during the Iraq war threatened U.S. interests. Protests erupted in Basra and Baghdad in Iraq, OPEC's second-largest producer. "We do not like the latest escalation of violence in the Middle East and we expect some good news from the Fed later," said Rob Montefusco, oil broker at Sucden Financial in London. Brent's expiring front-month October contract rose 64 cents to $116.60 a barrel by 11:36 a.m. EDT (1536 GMT). It earlier rallied to $117.48, the highest level for Brent since the May 3 intraday peak of $118.45. U.S. crude was up 90 cents at $97.91 a barrel, having reached $98.58, the highest level since hitting $102.72 on May 4. Brent trading volume outpaced U.S. crude turnover, but both were below their 30-day averages approaching midday in New York. 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. FED MULLS STIMULUS The U.S. Federal Reserve 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. U.S. producer prices rose by the most in three years in August as the cost of energy surged, but underlying inflation pressures were contained and that was expected to keep the door open to additional monetary easing. A separate report underscored the weakness in the labor market, a major concern for the Federal Reserve. The number of Americans filing new claims for jobless benefits rose to a two-month high, although some of the increase was attributed to Hurricane Isaac. "Everyone is expecting QE and the weaker dollar is supporting, and all pullbacks are being bought into," said Bill Baruch, senior market strategist at iitrader.com in Chicago. The bullish sentiment followed Germany's Constitutional Court decision on Wednesday giving a green light for the country to ratify the euro zone's new bailout fund and budget pact, helping to boost global stocks and the euro. The dollar index weakened slightly on Thursday, but the euro fell to a session low on a report quoting an International Monetary Fund official as saying Greece may need a third bailout. (Additional reporting by Julia Payne in London and Randy Fabi in Singapore; Editing by Marguerita Choy and Dale Hudson) (robert.gibbons@thomsonreuters.com; +1 646 223 6059; Reuters Messaging: robert.gibbons.reuters.com@reuters.net)

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