* Yen hits 5-month high against euro, 2-month high on dollar
* Fears over Portuguese banks create risk aversion
* Fed seen staying dovish, adding to dollar weakness (Adds updated prices)
By Karen Brettell
NEW YORK, July 10 (Reuters) - The yen hit a five-month high against the euro and an almost two-month high against the dollar on Thursday after concerns about Portugal's largest listed bank and weak Italian economic data hit European shares.
Worries about the health of a parent company of Banco Espirito Santo hurt peripheral euro zone bonds, curbing demand at Greece's second debt sale following its 2012 default. It was the first significant episode of contagion for peripheral euro zone markets this year.
"We're seeing some problems coming out of Europe," said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York. "Markets are selling euros and buying safe havens like the Japanese yen."
The yen was last up 0.67 percent at 137.71 against the euro , after earlier gaining to 137.46 yen, the highest since Feb. 6.
The Japanese currency rose 0.38 percent to 101.25 yen against the dollar, after earlier rising to 101.04, the highest since May 21.
The moves also came after data showed the steepest drop in Italian industrial output in almost two years.
The dollar gained 0.33 percent against the euro to $1.3601. The greenback also rose 0.16 percent against a broad basket of currencies to 80.023, according to the dollar index .
Investors also continued to digest the minutes of the U.S. Federal Reserve's June meeting, which were released on Wednesday and showed a still-dovish central bank. The Fed didn't offer any new signals that it is closer to raising interest rates.
"The Fed minutes were not as hawkish as the market had feared. It looks like the Fed won't be raising short-term rates any time sooner than what they've already communicated," said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management in New York.
The dollar has struggled to break above tight ranges against the euro as Treasuries yields have stayed relatively low, with investors looking for stronger signals that the economy is gaining enough momentum for the Fed to begin raising interest rates.
"Unless Treasury yields start moving up to reflect the better data from the United States, it would be a rather frustrating time for dollar bulls," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
Fed Vice Chair Stanley Fischer was due to speak later on Thursday.
(Additional reporting by Anirban Nag in London; Editing by Nick Zieminski; and Peter Galloway)