* Concerns about large Portugal bank spur bids for bonds
* Longer-dated U.S. yields fall to 5-week lows
* Stocks trimming initial losses limit bond market gains
* Relatively weak auction of $13 billion of 30-year bonds (Updates market action, adds quote)
By Richard Leong
NEW YORK, July 10 (Reuters) - U.S. Treasuries prices rose on Thursday, with benchmark yields falling to their lowest in five weeks as investors scrambled for low-risk bonds on worries that problems involving Portugal’s biggest listed bank may rekindle the region’s financial woes.
The bond market clung to modest gains following the minutes on the Federal Reserve’s June 17-18 policy meeting released on Wednesday, which suggested the central bank is unlikely to raise policy rates until the second half of 2015.
Demand for Treasuries has been underpinned by the global drop in stock prices, which reduced their initial steep drop and held bonds’ gains in check.
Weak overseas economic data and intensified fighting between militants in Gaza and the Israeli military have also fed this week’s bids for U.S. Treasuries.
The jump in bond prices likely tempered bidding at the $13 billion auction of 30-year Treasuries, the last leg of this week’s $61 billion in fixed-rate government debt supply, traders said.
“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.
Benchmark 10-year notes were up 1/32 in price with a yield of 2.539 percent, down 0.6 basis point from Wednesday, while prices on 30-year bonds ended 6/32 lower after the relatively weak auction, yielding 3.372 percent, up 1 basis point on the day.
Earlier, 10-year and 30-year yields fell to five-week lows at 2.494 percent and 3.323 percent, respectively, following news of financial irregularities involving Espirito Santo International, the largest holder of Portugal’s Banco Espirito Santo.
Major U.S. stock indexes were stuck in negative territory but came back from their earlier lows. The S&P 500 was down 0.4 percent after falling as much as 1 percent. Top European stocks closed 1 percent lower, while Tokyo’s Nikkei fell 0.6 percent.
“We saw some reversal in flight-to-quality trades in bonds in the afternoon,” said Brian Smith, a bond trader at TCW in Los Angeles.
Earlier, disappointing French and Italian economic data compounded worries about the overall euro zone economy, spurring bets on aggressive action from the European Central Bank.
With concerns about economic weakness overseas and fighting in the Middle East, traders have brushed off more encouraging signs about the U.S. economy.
The U.S. Labor Department said on Thursday the number of Americans filing for unemployment benefits for the first time unexpectedly fell to 304,000 last week, one of the lowest weekly readings since before the 2007-2009 recession. (Reporting by Richard Leong; Editing by Meredith Mazzilli and Tom Brown)