* Wall St falls on dismal U.S. jobs data for June
* European stocks turn negative on euro zone banks
* World stocks off earlier five-week highs
* US crude down almost 3 pct, erasing Thursday's gains (Recasts with drop in U.S. stocks; updates prices)
By Barani Krishnan
NEW YORK, July 8 (Reuters) - U.S. and overseas stocks fell on Friday after the U.S. government's June jobs report came in way below market expectations, also knocking oil prices down and trimming the dollar's gains against the euro.
Worries about the peripheral euro zone banking sector had earlier tipped world stocks off five-week highs and sent European equities lower.
The U.S. Labor Department's closely watched employment report showed nonfarm payrolls rose by only 18,000, the weakest reading since September and well below economists' expectations of a 90,000 rise. For more, see: [ID:nOAT004829]
The disappointing jobs report revived a bid for U.S. Treasuries.
Wall Street's benchmark S&P 500 index fell more than 1 percent, snapping eight straight days of gains that resulted in a cumulative 6.7 percent rise.
Analysts said the jobs report stunned investors after optimistic forecasts following Thursday's report from private payrolls processor ADP.
"(This is) very disappointing and more from a positioning standpoint where some shorts had thrown in the towel over the last several days and especially yesterday," said Michael Marrale, managing director and head of sales trading at RBC Capital Markets in New York.
"I would expect them to re-engage on the back of this number," Marrale said, suggesting further heavy selling.
At 10:45 a.m. EDT (1445 GMT), the Dow Jones industrial average .DJI was down 119.35 points, or 0.94 percent, at 12,600.14. The Standard & Poor's 500 Index .SPX lost 15.49 points, or 1.14 percent, at 1,337.73. The Nasdaq Composite Index .IXIC fell 31.31 points, or 1.09 percent, to 2,841.35.
Global stocks briefly extended Thursday's five-week highs, before falling along with equities in Europe and emerging markets.
The MSCI world equity index .MIWD00000PUS was down 0.8 percent. The FTSEurofirst 300 index .FTEU3 lost 0.7 percent. Emerging market stocks .MSCIEF hit two-month highs before retreating 0.3 percent.
Prices on U.S. 30-year Treasury bonds US30YT=RR were up nearly a point after the June payrolls report fueled bets on tame inflation and the Federal Reserve keeping interest rates low for longer than previously thought.
The benchmark 10-year U.S. Treasury note US10YT=RR was up 30/32, its yield at 3.031 percent.
In Europe, German Bunds rallied and peripheral nations' bonds came under pressure as concerns over slow progress on a second Greek bailout and the health of European banks underpinned demand for safe-haven assets.
Oil prices slid in volatile trade after the U.S. payrolls data dashed hopes of investors who had positioned themselves for a strong number.
U.S. crude oil CLc1 was down almost 3 percent, trading at just above $96 a barrel and erasing all of Thursday's gains. London's Brent crude LCOc1 was down 1 percent, hovering around $117 a barrel
