The S&P/ASX200 fell 17.1 points by midday, down 0.19 per cent, to 8,959.7, as the broader All Ordinaries dipped 13.9 points, or 0.15 per cent, to 9,123.1.
"President Trump has called off a major planned attack on Iran (with Israel also joining the commitment) after Iran and other Middle Eastern countries asked him to hold off, saying the perimeters of a deal have already been agreed," IG market analyst Tony Sycamore said.
"The deal would need to include the immediate, complete and total opening of the Strait of Hormuz plus an end to Iran's nuclear threat."
Markets appeared to take the news with wary optimism, as Brent crude eased to $US83.81 a barrel, while the local share market shrugged off Friday's tech-led rally on Wall Street to begin the week lower.
Energy stocks weighed, as Woodside and Santos each tumbled more than two per cent, while Viva lost 1.4 per cent but Ampol traded flat.
The financials sector dipped 0.5 per cent as the big four banks and Macquarie lost ground, while insurers and investment firms had a mixed morning.
AMP dipped 1.5 per cent, but has hung on to most of its recent gains after a strong trading update. It will hand down its financials for the first half on Thursday.
Mining stocks were subdued, easing by less than 0.2 per cent as BHP, Rio Tinto and Fortescue came under pressure as iron ore prices dropped to 13-month lows of $US94.20 a tonne.
The gold price rose to $US4,054 ($A5,764) an ounce after easing oil prices relieved some pressure on global inflation and interest rate expectations.
Strong performances in the more defensive utilities, consumer staples and health care sectors indicated investors weren't betting the house on a potential peace deal, after so many false starts and conflicting messaging from US and Iranian authorities.
In company news, Steadfast was the top-200's best performer with a 4.7 per cent gain after confirming Kohlberg Kravis Roberts was proceeding with its takeover offer for the insurance network operator.
Looking ahead, August earnings season ramps up this week, with News Corporation, REA Group, James Hardie and Nick Scali to hand down financial results.
The Australian dollar is buying 70.34 US cents, roughly on par with its price on Friday at 5pm.
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