Oil prices plunged more than 5 percent on Thursday in their steepest one-day drop since July, after a rise in U.S. jobless claims and spreading concern over Europe's economic health drove investors to sell commodities and seek less risky assets.

U.S. crude for March delivery fell $4.05 a barrel to $72.93 by 12:41 p.m EST, while London Brent shed $3.94 to $71.98 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.

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 Europe'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.

Government data on Wednesday 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 slightly up for the week, after they closed at $72.89 a barrel last Friday. 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.

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 about 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.

Oil prices fell as investors sold off assets deemed riskier, such as commodities and equities, and parked them in safe-havens like U.S. Treasury bonds. Stock markets dropped around the globe on Thursday, with the S&P 500 index falling more than 2.3 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)

(Reporting by Joshua Schneyer; Editing by David Gregorio)

Portugal