NEW YORK (AP) -- The dollar rose to a 2008 high against the euro and a fresh 28-month high against the pound Thursday after the European Central Bank held its interest rate steady and cut growth forecasts for the euro zone.

The 15-nation currency dropped to $1.4331 from $1.4493 late in New York Wednesday after earlier touching a new 2008 low of $1.4319.

The ECB held its interest rate at 4.25 percent, as expected, as it struggles to balance accelerating inflation with slowing economic expansion. But the central bank cut its growth forecasts for 2008 and 2009 as it raised its inflation outlook. It said GDP growth in the euro zone would be from 1.1 percent to 1.7 percent in 2008, and from 0.6 percent to 1.8 percent in 2009, lower than previous estimates.

The British pound dropped to $1.7690 from $1.7759 after glancing off a fresh 28-month low of $1.7625. While the Bank of England also kept its key interest rate steady, at 5 percent, rate cuts are expected amid a housing crisis and economic stagnation in England, wrote Ashraf Laidi, chief currency strategist at CMC Markets US in New York, in a research note.

Higher interest rates can support a currency as investors transfer funds to where they can get better yields, while also helping to tamp down inflation. Cutting rates can weaken a currency while spurring economic growth.

"The euro zone is headed to recession," said Win Thin, currency strategist at Brown Brothers Harriman

WASHINGTON (AP) -- Jobless claims rose unexpectedly last week, the government said Thursday, while companies responded to the slowing economy by producing more with fewer workers.

It was not great news for American workers, who have seen jobs decline and wages erode, but it may signal less inflation worries for the Federal Reserve.

The Labor Department reported that new applications for unemployment insurance rose to a seasonally adjusted 444,000, up 15,000 from the previous week. Economists had expected claims to drop to 420,000.

That news, plus disappointing sales reports from retailers, sent financial markets down as investors lost hope for an end of the year recovery. The Dow Jones Industrial Average dropped 344.65, or 2.99 percent, to 11,188.23, its worst tumble since June 26, when it fell more than 3.03 percent. The Standard & Poor's 500 index fell 2.99 percent, and the Nasdaq composite index slid 3.20 percent.

Stocks fell even though the price of oil dropped to its lowest in five months on worries that the slowing global economy would curtail energy demand from businesses and consumers.

Many economists expect unemployment will continue to rise for the rest of the year. A separate report on Thursday indicated that hiring by companies in the service sector has declined.

"Across the board, we're seeing evidence that labor conditions are worsening," said Carl Riccadonna,

NEW YORK (AP) -- Oil prices closed at their lowest level in five months Thursday as a lower-than-expected drop in U.S. gasoline supplies gave traders more reason to believe that a cooling economy is forcing Americans to drive less.

Light, sweet crude for October delivery fell $1.46 to settle at $107.89 a barrel on the New York Mercantile Exchange. It was the lowest settlement price for a front-month contract since April 4.

Crude prices have fallen for five straight sessions, extending an almost two-month slide as traders shift their attention away from supply-threatening storms and back toward a stronger dollar and evidence of falling demand.

On Wednesday, oil prices settled 36 cents lower at $109.35 a barrel, a day after a dramatic, nearly $6 plunge in response to less damage from Hurricane Gustav than the oil industry feared. That brought crude prices in sight of $100 a barrel, a level not seen since April 1.

A smaller-than-expected drawdown of U.S. gasoline stocks was the primary driver of Thursday's declines.

In its weekly inventory report, the Energy Department's EIA said U.S. gasoline stocks fell by 1 million barrels to 194.4 million barrels for the week ending Aug. 29, less than the 1.8 million-barrel drop analysts surveyed by energy research firm had Platts expected.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill., said the inventory numbers may have been skewed by market irregularities caused by Gustav, but he said the