(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 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 , 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 are at

316,525 tons, the lowest since September 2022.

Elsewhere, copper 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 gained 1.1% to $3,608.50, lead edged down

0.1% to $1,979.50, nickel nudged up 0.2% to $18,035 and

tin added 0.5% to $55,165.