TOKYO, April 20 (Reuters) - The dollar headed for its highest level in a week at the start of Asian trading on Monday as renewed tensions in the Middle East sent investors scurrying for safe havens.

The dollar index, which measures the greenback's strength against a basket of six currencies, climbed as much as 0.3% to reach 98.485, its highest level since April 13. This reversed a selloff that saw the currency fall to its lowest levels since the start of the war on Friday as hopes for a peace deal grew.

"Weekend developments may temper this optimism," analysts from Westpac wrote in a research note.

On Sunday, U.S. President Donald Trump said that the U.S. military had seized an Iranian cargo ship that tried to run its blockade, while Iran said it would not participate in a second round of peace talks despite Trump's threat of renewed airstrikes. 

Analysts at Barclays said their sentiment data showed investors still favoured the dollar, so it had more room to drop should the situation in the Middle East normalise.

"Any (market) wobble would likely have less space to extend and may even prove opportune to re-establish short dollar exposures," they said in a note dated Sunday. "The question here remains on whether this wobble is even worth trading given all the related noise and uncertainties."

The euro was down 0.3% at $1.1731, while the British pound fell by the same magnitude to $1.3480.

Against the yen, the U.S. dollar was up 0.2% at 158.945 yen and 0.1% stronger against the Chinese yuan at 6.8244 yuan in offshore trade.

The Australian dollar fell 0.6% to $0.7122 while the New Zealand dollar slid 0.4% to $0.5856.

Bitcoin was down 0.7% at $74,130.13, as ether shed 0.7% to $2,266.10.