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TOKYO, July 18 (Reuters) The dollar held near a three-month high against the yen and a three-week peak versus the euro on Tuesday as investors turned to the perceived safety of the world's most liquid currency due to rising West Asia tensions.

Israeli warplanes pounded Lebanon for a sixth straight day on Monday in the heaviest destruction on Lebanese territory for two decades.

Tension between Israel and Lebanon forced investors to square short positions in the dollar, but analysts and traders said the market's attention may soon turn to US economic events as investors hunt clues about whether the Federal Reserve will raise interest rates again in August.

''Fed Chairman Ben Bernanke's testimony is likely to have a bigger impact on the currency market than the Mideast tension,'' said Masafumi Yamamoto, currency strategist at Nikko Citigroup.

Bernanke is due to testify on the central bank's semiannual monetary policy report before Congress on Wednesday and Thursday.

The Fed raised interest rates for the 17th straight time to 5.25 percent last month, and market participants are divided on whether it will boost the funds rate again in August to 5.5 percent.

In early Asian trade, the dollar slipped to 116.90 yen from around 117.25 yen in late New York trade on Monday, when the U.S.

currency hit a three-month high of 117.29 yen on electronic trading platform EBS.

Traders said that Japanese investors were taking profits on the dollar's rally versus the yen, a day after financial markets in Japan were close due to a national holiday.

The euro was little changed at $1.2520, just off a three-month low of $1.2510 touched on Monday.

The euro weakened to 146.45 yen, about 1 yen below the record high of 147.42 yen hit earlier this month.

Reuters DKS GC0552