Oil prices plunged 5 percent on Thursday, the steepest one-day drop since July, as rising U.S. unemployment claims and fear that debt-laden European economies may falter prompted a commodities sell-off.

U.S. crude for March delivery settled down $3.84 a barrel to $73.14, while London Brent fell $3.79 to $72.13 a barrel.

The number of U.S. workers filing initial jobless claims rose to a more-than-expected 480,000 last week, the Labor Department said.

A stronger dollar also cut investor appetite for oil, which is priced in the U.S. currency. The greenback firmed to a seven-month high against the euro amid fears over the fiscal health of European economies including Greece, Portugal and Spain.

European Central Bank President Jean-Claude Trichet said Europe's economic recovery could be uneven and subject to uncertainty.

U.S. refinery utilization fell to 77.7 percent last week amid poor margins, the lowest since the 1980s except for periods of hurricane-related refinery outages, government data showed Wednesday.

The underlying fundamentals are coming back to haunt us now, and oil is falling, said Gene McGillian with Stamford, Connecticut-based Tradition Energy. Unemployment numbers were worse than expected and the euro came under pressure.

Oil prices were still slightly positive on the week, after closing below $73 a barrel last week. But oil has dropped more than $10 a barrel since closing at a 15-month high above $84 on January 11, as fuel demand stagnates amid a sluggish economic recovery in the United States, the biggest consumer.

Trading volume on Thursday for front-month U.S. oil futures, the most-traded oil contract, was the heaviest since December 9, according to Reuters data.

The U.S. Department of Energy said on Wednesday that U.S. crude stockpiles rose sharply last week.

Things are very bearish for crude. On the demand side, things are horrible, said Phil Flynn, analysts at PFGBest in Chicago.

Fears over Europe's economic health have been exacerbated by Greece's gaping budget gap of 12.7 percent of gross domestic product. The ECB's Trichet said he was confident that Greece can slash spending, and a Greek official said the country has no plan to seek International Monetary Fund assistance over its fiscal crisis.

I think everybody is afraid this Greek crisis is going to spread throughout the world, Flynn said.

Other commodities dipped along with oil. Gold fell to a three-month low and copper futures slid to a 10-week low.

Investors sold off assets deemed riskier, including commodities and equities, and parked them in safe havens such as U.S. Treasury bonds. Stock markets dropped around the globe, with the S&P 500 index falling more than 2.2 percent. <.SPX>

(Additional reporting by Gene Ramos and Robert Gibbons in New York, David Sheppard in London and Alejandro Barbajosa in Singapore; Editing by Marguerita Choy and Lisa Shumaker)