Oil falls to $114 as U.S. considers oil release

* White House studying possible release of oil reserves

* Israel's Peres opposes any solo Iran attack

* Merkel backs Draghi, swift European policy integration

* Stocks firm, euro holds onto gains on Merkel remarks

* Coming Up: U.S. leading indicators for July; 1400 GMT (Updates throughout, changes dateline, previous SINGAPORE)

By Christopher Johnson

LONDON, Aug 17 (Reuters) - Brent crude oil fell to around $114 on Friday after the United States said it was considering the possible release of oil reserves to dampen prices and the Israeli president spoke out against any lone Israeli attack on Iran.

News the White House was "dusting off old plans" for a potential release of strategic oil stocks helped knock more than $1 per barrel of Brent, which hit a three-month high on Thursday.

The global benchmark has risen more than a third in less than two months on worries that conflict over Iran's disputed nuclear programme could lead to war, disrupting oil supplies from the Middle East.

But the oil price rally has come at a time when world economic growth is slowing, dampening demand for fuel, and oil supplies have been ample, helping restock inventories, and many investors feel the recent price rises have been overdone.

Brent crude fell $1.40 to a low of $113.87 a barrel before recovering to around $114.00 by 1008 GMT. The September contract which expired on Thursday ended at the highest since May 2. U.S. oil slipped 40 cents to $95.10, after settling up $1.27.

"The market moved a long way in quite a short time and we are now seeing some profit-taking," said Eugen Weinberg, global head of commodities research at Commerzbank in Frankfurt.

"But sentiment towards commodities and other 'riskier' assets has improved with the euro strengthening and the dollar easier. The market is looking for reasons to correct a little."

U.S. officials will monitor market conditions over the coming weeks, watching whether gasoline prices fall after the Sept. 3 Labor Day holiday, in line with usual practice, a Washington source with knowledge of the situation told Reuters.

The United States has not yet held talks with international partners about a coordinated move. The source said Britain, France, Germany and other partner nations in the Paris-based International Energy Agency (IEA) had been receptive to a potential release a few months ago when conditions were similar.

Britain's energy ministry said on Friday it was prepared to ask the IEA to take action to deal with high oil prices, however neither it nor its partners had made any decisions to release stocks.

Japan and South Korea saw no need yet for a release from reserves, government sources said on Friday.

ISRAEL VS IRAN

Oil prices were also dampened by easing concerns of a supply disruption from the Middle East after Israeli President Shimon Peres downplayed the prospect of a unilateral strike on Iran.

Peres said on Thursday he trusted U.S President Barack Obama's pledge to prevent Tehran from producing nuclear weapons.

Peres' comments appeared to challenge Prime Minister Benjamin Netanyahu and Defence Minister Ehud Barak, who have both raised the prospect of a unilateral Israeli strike.

Oil prices received some support from comments by German Chancellor Angela Merkel on Thursday, which helped push stock markets to multi-month highs on Friday and boosted the euro.

Merkel voiced support for ECB President Mario Draghi's euro crisis-fighting strategy and pressed her European partners to move swiftly towards a closer integration of fiscal policies, saying time was running short.

Hopes the euro bloc may finally be getting a grip on its problems lifted top European shares in early trading with the main indexes in London, Paris and Frankfurt all in positive territory, helping the MSCI index of global shares extend an 11.5 percent gain that started back in June.

The euro was buoyant around $1.235 and hit a six-month high versus the yen.

Investors are now looking for indications on whether the U.S. Federal Reserve will initiate more measures to stimulate growth, with data still suggesting that the world's biggest economy hasn't reached a stage of steady recovery. (Additional reporting by Manash Goswami and Elizabeth Law in Singapore; Editing by Alison Birrane)

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