UPDATE 2-Brent slips below $114 as concern over potential Iran ...

* US crude stocks rise unexpectedly, products mixed -API

* Brent biased to fall to $112.50 -technicals

* Coming up: EIA weekly oil stocks; 1430 GMT (Updates prices)

By Manash Goswami and Elizabeth Law

SINGAPORE, Aug 15 (Reuters) - Brent crude futures slipped below $114 on Wednesday after settling at a three-month high, with worries about disruptions to supply easing after the United States said it did not believe Israel had made a decision whether to attack Iran.

Concern about the potential for military conflict in the Middle East over Iran's disputed nuclear programme has supported oil prices this year, pushing Brent to a high of more than $128 a barrel in March, despite a worsening outlook for demand growth. A surprise jump in stockpiles in the U.S. is also weighing on prices.

Brent crude had slipped 10 cents to $113.97 per barrel by 0632 GMT, after ending up 43 cents at its highest settlement since May 3. U.S. crude fell 3 cents to $93.40 after closing 70 cents higher.

"We are probably seeing a bit of a reaction to the crude inventory figure and also comments from the United States about there being time for diplomatic action to resolve the Iran issue," said Ric Spooner, chief market analyst at CMC Markets. "We are back in what we can call a neutral zone for oil prices."

The European benchmark will trade between $110 and $115 unless there is a major supply shock or demand growth forecasts are cut further, Spooner said, adding that the U.S. contract would stay around $95 to $98.

Brent has swung between a high of more than $128 per barrel and a low of $88.49 this year. The trading range of nearly $40, resulting from heightened Middle East supply worries and a weakening growth outlook, is the widest since 2009, when it was $40.91. In 2011, the range was $34.65 and in 2010, $27.33.

"Oil has now rallied some 20 percent since the lows in June, putting it back into equilibrium," Spooner said.

The European benchmark is biased to fall to $112.50 per barrel as its consolidation in a $113.14-$114.68 range indicates the rise from the Aug. 1 low of $104.06 has ended, while U.S. oil looks neutral in a range of $92.05-$94.14 per barrel, according to Reuters technical analyst Wang Tao.

SUPPLY, DEMAND OUTLOOK

There is still time for sanctions and diplomatic pressure to work, and the United States does not believe Israel has made a decision on whether to attack Iran, Defense Secretary Leon Panetta said on Tuesday. Panetta, who visited Israel two weeks ago, told reporters it was important that military action be the "last resort".

The comments helped ease worries of a conflict after Israel's Prime Minister Benjamin Netanyahu said on Sunday that most threats to Israel's security were "dwarfed" by the prospect of Iran obtaining nuclear weaponry.

A surprise increase in stockpiles in the world's biggest oil consumer is also weighing on prices. Total crude inventories rose 2.8 million barrels in the week to Aug. 10, the American Petroleum Institute said, compared with analyst expectations for a 1.7-million-barrel drawdown.

The API data will be followed by more closely watched numbers from the U.S. Energy Department later today, providing a pointer to the country's demand growth outlook.

"If the EIA has similar oil stock figures as API, it would be overall bearish," said Tony Nunan, a risk manager at Mitsubishi Corp said.

Oil may also be under pressure from growing expectations that the U.S. Federal Reserve is unlikely to immediately announce measures to stimulate growth following better-than-expected July retail sales numbers.

The broad expansion in retail sales has bolstered the view that the slowdown in economic growth during the second quarter will prove temporary.

"The U.S. Fed is less likely to do something in the next meeting," Spooner said. "It will be happy to sit back and see how the economy develops."

Yet Brent futures are unlikely to dip much further, with a drop in North Sea crude output and lingering supply worries putting a floor under prices.

"Crude might get stronger because of the issues with North Sea production," said Victor Shum, a consultant at IHS Purvin & Gertz. "Definitely the Iran sanctions are already starting to have an effect, and we can see the obvious effects on crude prices." (Editing by Joseph Radford)