TOKYO (Reuters) -The yen strengthened on Monday, reversing earlier declines, as an escalation in Middle-East tensions rignited safe-haven demand for the Japanese currency.

Tel Aviv is weighing a response to a deadly rocket strike in the Israeli-occupied Golan Heights, which Israel and the United States blamed on Lebanese armed group Hezbollah.

The market reaction exposes the fragility of investor sentiment following last week's swift tech share sell-off, which helped the yen rally to its strongest level in 12 weeks against the dollar on Thursday.

The dollar was last down 0.17% at 153.51 yen after slipping as much as 0.35% initially.

It had started the day by gaining as much as 0.36%, as the global equity market rebound from Friday extended into Monday in Asia, with Japan's Nikkei stock average up more than 2%.

The dollar dipped as low as 151.945 on Thursday for the first time since May 3, and ended the week down 2.4%, its worst weekly performance since late April.

"The rally seemed to stall" in dollar-yen following the Israel news, said Shinichiro Kadota, a currency and rates strategist at Barclays in Tokyo. "Sentiment remains fragile."

Ultimately though, "U.S. equities are still the key," Kadota added. "Market moves have been led by U.S. equities, and we need to see if things stabilize there."

The U.S. earnings calendar this week is populated with heavyweights including Amazon, Apple, Meta and Microsoft.

Currency traders also need to contend with policy decisions from both the Bank of Japan and Federal Reserve on Wednesday, followed by the Bank of England a day later.

Speculation has grown that the BOJ will raise interest rates on Wednesday at the same time as significantly reducing its monthly bond purchases. It had promised to outline its quantitative tightening (QT) plans at this meeting during its previous gathering last month.

"If the BOJ holds off on hiking rates, it will need to announce a more aggressive QT programme than expected to avoid a 'sell-the-rumour, buy-the-fact' ... reaction in USD/JPY," said Tony Sycamore, a market analyst at IG.

Elsewhere, the Fed is widely expected to leave rates unchanged this week, but cut them by a quarter point at the following meeting in September.

The dollar index, which measures the currency against the yen, euro, sterling and six other major peers, fell 0.19% to 104.17.

The euro eased 0.15% to 166.53 yen, and added 0.12% to $1.0868.

It was flat at 84.35 British pence, not straying far from the high of 84.48 pence from Friday, the strongest since July 10.

Sterling added 0.14% to $1.2885.

Markets see the odds of a BoE first rate cut on Thursday as a coin toss.

Elsewhere, the Australian dollar gained 0.24% to $0.6563, recovering from Friday's low of $0.65105, a level not seen since the start of May.

Leading cryptocurrency bitcoin advanced 2.6% to $69,212, receiving some support from positive comments from Republican presidential candidate Donald Trump, who told a bitcoin conference on Saturday that the U.S. must dominate the sector or China would.