LONDON (AP) — A bigger than expected fall in weekly U.S. jobless claims Thursday reinforced expectations that the Federal Reserve will start to reduce its monetary stimulus next month, sending stocks sharply lower and the dollar up.

The Labor Department reported that weekly claims slid 15,000 last week to 320,000, the lowest level since October 2007. Analysts said the sharp fall makes it more likely that the Fed will start to reduce its stimulus in September. That’s weighed on stock markets as the stimulus has been one of the main reasons why share prices, particularly in the U.S., have more than doubled since the financial crisis started in 2008.

Other figures showed industrial production was flat in July, while the Empire State survey into manufacturing conditions in the New York region was subdued. But neither was weak enough to temper the growing expectations that the Fed will begin the so-called tapering in a month or so.

Alan Ruskin, an analyst at Deutsche Bank, said the claims data were “excellent …. with no obvious seasonal distortions,” and as such “entirely consistent with September tapering expectations.”

In the wake of the figures, stocks took a dive while the dollar garnered support as traders priced in the prospect of less new money being pumped into the U.S. economy. The Fed is at present buying $85 billion of financial assets a month in an effort to shore up the economy.

In the U.S., the Dow Jones industrial average was down 0.7 percent at 15,233 while the broader S&P 500 index fell 0.8 percent to 1,673. The dollar rose 0.5 percent to 98.33 yen while the euro was down 0.2 percent at $1.3234. Prior to the data, the euro was trading around the $1.33 mark.

In Europe, Germany’s DAX fell 1 percent to 8,358 while the CAC-40 in France was 0.8 percent lower at 4,081. The FTSE 100 index of leading British shares was down 1.5 percent at 6,487 even after figures showed retail sales in the country surged by a monthly rate of 1.1 percent in July, nearly double market expectations for a 0.6 percent rise.

Analysts said the forecast-busting rise added to the evidence that the U.K. economy is recovering and that may mean the Bank of England will tighten its policy sooner than many in the markets have been predicting. As such, the British pound got a fillip, rising 0.5 percent to $1.5579.

Earlier, Asian markets fell amid concerns over the Fed tapering. Japan’s Nikkei 225 index tumbled 2.1 percent to close at 13,752.94. Hong Kong’s Hang Seng was flat at 22,539.25. Australia’s S&P/ASX 200 fell 0.1 percent to 5,152.40.

Meanwhile, the price of oil climbed above $107 a barrel Thursday as the escalating violence in Egypt was seen as threatening stability in the Middle East, and U.S. crude supplies fell in a possible sign of stronger demand. The benchmark New York rate was 69 cents higher at $107.54 a barrel.