May 7 (Reuters) - London copper prices edged lower on Thursday, as investors took a breather after the previous session's rally and assessed the prospects of a peace deal between the U.S. and Iran, and concerns surrounding the Strait of Hormuz.

Benchmark three-month copper CMCU3 on the London Metal Exchange fell 0.3% to $13,355 per metric ton by 0312 GMT.

Prices climbed to a near two-week high in the previous session as hopes of easing tensions in the Middle East provided relief to copper, a metal seen as a barometer of macroeconomic health and used widely in power and construction.

The most-traded copper contract on the Shanghai Futures Exchange SCFcv1 inched up 0.3% at 102,800 yuan ($15,092.67) per ton.

"The pullback in copper isn't a sign of weakening demand, but rather a 'momentum pause' following Wednesday's rally," said Tim Waterer, chief market analyst, KCM Trade.

"Traders are essentially recalibrating for a world where the Strait of Hormuz isn't permanently blockaded (should a peace deal emerge), and that is allowing for some healthy consolidation at these multi-week highs."

Iran said on Wednesday it was reviewing a U.S. peace proposal that sources said would formally end the war while leaving unresolved the key U.S. demands that Iran suspend its nuclear program and reopen the Strait of Hormuz.

Oil prices rose about $1 in early trade on Thursday, rebounding from the previous day's sharp losses, as investors weighed the prospects of the Middle East peace deal succeeding. O/R

Meanwhile, Federal Reserve officials said on Wednesday the ongoing U.S.-backed war with Iran is raising the risk of a sustained inflation shock, with continued high oil prices and developing concerns about problems with global supply chains.

Among other LME metals, aluminium CMAL3 fell 0.8%, nickel CMNI3 lost 0.3%, lead CMPB3 inched down 0.1%, tin CMSN3 shed 1.4% and zinc CMZN3 held steady.

On the SHFE, aluminium SAFcv1 lost 1.9%, nickel SNIcv1 fell 3.5%, lead SPBcv1 was down 0.4%, zinc SZNcv1 inched up 0.3%, while tin SSNcv1 rose 3.2%.