Recasts to lead with aluminium; updates prices; changes dateline to London

LONDON, June 17 (Reuters) - Aluminium climbed on Wednesday, as dip-buying spurred a recovery from the steep drop in prices at the start of the week, when a U.S.-Iran peace agreement eased supply fears.

Benchmark three-month aluminium CMAL3 on the London Metal Exchange was trading up 1.1% at $3,424 per metric ton as of 0941 GMT. The metal had slumped to a 2-1/2 month low of $3,334 in the previous session, when details of the U.S.-Iran memorandum to end the war in the Middle East began to emerge.

The conflict forced several smelters in the Gulf region, which accounts for around 9% of global aluminium capacity, to cut production and disrupted shipping, propelling aluminium prices to a near four-year high earlier this month.

"I think it's a bit of bargain hunting," Panmure Liberum analyst Tom Price said of Wednesday's rebound. "Maybe some people have got a view that the peace deal isn't going to be as clean cut as everyone hopes it to be and there's more grief coming through."

Israel has distanced itself from the latest U.S.-Iran agreement, adding to the uncertainty.

One aluminium trader said investors were engaging in range trading, buying the metal when it fell to a low level and selling when it met upper resistance.

The cash LME aluminium contract was trading at a roughly $4 discount over the three-month forward CMAL0-3, tightening from a $16.50 discount on Tuesday.

The spread had been in a backwardation, where near-term prices are higher than those for delivery further in the future, for more than two months before flipping late last week.

Aluminium stocks in LME warehouses MALSTX-TOTAL are at 316,525 tons, the lowest since September 2022.

Elsewhere, copper CMCU3 added 0.3% to $13,813 per ton on optimism over the peace deal, its gains capped by expectations that the U.S. Federal Reserve would keep borrowing costs higher for longer.

Zinc CMZN3 gained 1.1% to $3,608.50, lead CMPB3 edged down 0.1% to $1,979.50, nickel CMNI3 nudged up 0.2% to $18,035 and tin CMSN3 added 0.5% to $55,165.