Oil prices plunged 5 percent on Thursday in their steepest drop since July after higher U.S. jobless claims and a firming dollar prompted investors to shun riskier assets like commodities.

U.S. crude for March delivery fell $3.76 a barrel to $73.22 by 11:48 a.m EST, while London Brent shed $3.64 to $72.28 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 Thursday.

The U.S. dollar shot up to a seven-month high against the euro amid growing concerns over the fiscal health of European economies including Greece, Portugal and Spain.

European Central Bank President Jean-Claude Trichet said the region's economic recovery could be uneven and subject to uncertainty. A stronger dollar can cut investor appetite for oil, which is priced in the U.S. currency.

Data from the U.S. Energy Information Administration showed 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.

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

The data on U.S. oil inventories and refinery runs have shown that there really isn't demand for refiners to use more crude, Mcgillian said.

Oil prices were still up for the week after closing at $72.89 a barrel last Friday. But they have dropped more than $10 a barrel since reaching a 15-month closing high above $84 on January 11, as fuel demand has stagnating amid a sluggish economic recovery in the United States, the largest oil consumer.

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

Oil prices also fell as investors moved funds away from assets deemed riskier, such as commodities and equities, and parked them in safe-havens like U.S. Treasury bonds. Equities tumbled around the globe on Thursday, with the S&P 500 index falling more than 2.4 percent.

(Additional reporting by David Sheppard in London and Alejandro Barbajosa in Singapore; Editing by David Gregorio)

(Reporting by Joshua Schneyer; Editing by David Gregorio)