* Top-listed Portuguese bank's shares slump 19 percent
* Risky asset bets thinned
* Treasuries gain on fear bidding, long bond off after auction
* Yen at five-month peak vs euro (Adds quotes, latest prices)
By Michael Connor
NEW YORK, July 10 (Reuters) - Stocks slumped worldwide on Thursday as investors flocked to safe-haven government bonds on fears problems at Portugal's biggest listed bank could herald wider problems for riskier assets.
European stock markets were hit hardest as trading in Banco Espirito Santo was halted after a 19 percent drop. The bank's largest shareholder suspended trading in its own shares and bonds due to "material difficulties" at its own largest shareholder.
Prices of benchmark U.S. government debt rose and the yen climbed to a five-month high against the euro as Wall Street seemed to ignore government jobless claims data that suggested the U.S. labor market was perking up.
The developments in Europe, following the recent collapse of a Spanish technology company, buttressed concerns stock valuations were getting rich after a long streak of gains.
"There are a lot of people looking at the market gains in conjunction with valuations being pretty full, and trying to time their exit," said David Joy, chief market strategist at Ameriprise Financial in Boston, where he helps oversee $771 billion in assets under management.
Joy said the situation in Portugal was simply an excuse for that to get under way.
"I find it a little bit of a stretch to think that a bank problem in Portugal is causing this," Joy said. "That may be the proximate cause of the real near-term weakness."
Many U.S. stock market participants have called for a pullback, with the S&P 500 yet to see a daily decline of 1 percent or more since April 10.
The Dow Jones industrial average fell 79.93 points, or 0.47 percent, to 16,905.68, and the Nasdaq Composite dropped 14.63 points, or 0.33 percent, to 4,404.41.
Ten-year notes were off their highs but still up 5/32 in price to yield 2.5268 percent. Prices of 30-year bonds turned lower after relatively weak results at a sale of $13 billion worth of an existing 30-year bond to be down 6/32 and yield 3.368 percent.
Treasuries have rallied this week on a global drop in stock prices, weak economic data in Italy and elsewhere overseas, and intensified fighting between militants in Gaza and Israel.
"There's a lot of reasons to find comfort in Treasuries right now," said Mike Lorizio, head of Treasuries trading at John Hancock Asset Management in Boston.
The yen gained 0.73 percent to 137.56 against the euro , the highest since Feb. 6, and was up 0.50 percent at 101.06 against the dollar, the highest since May 21.
Before the Wall Street open, a plunge of 19 percent in Portugal's BES drowned out any support from Wednesday's Federal Reserve minutes, which were seen as showing the U.S. central bank no closer to an outright rise in interest rates.
Stock markets in Germany and France fell between 1 and 1.5 percent while Norway's market was down 2 percent. An index of European shares lost 1 percent and a measure of world markets lost 0.5 percent.
European bank shares were stung. The STOXX Europe 600 Banking Index fell 1.7 percent to its lowest since mid-December.
Yields rose on bonds issued by southern European governments at the heart of four years of euro zone turmoil. Greece managed to place just half of a planned three-billion-euro bond.
Oil prices fell for a ninth session, with Brent dipping under $108 a barrel in the commodity's longest losing streak in four years while U.S. light crude slipped 0.16 percent to $102.13, pressured by weak U.S. gasoline demand and the prospect of rising Libyan supply. (Reporting by Michael Connor; Editing by Dan Grebler and James Dalgleish)