"Foreigners were both active participants in the initial stage of the (recent stock market) rally and substantial net purchasers," according to a report released yesterday by the Securities Industry Association, the main trade group for the brokerage industry.

Foreign purchase of U.S. equities began to accelerate in March with net purchases of $492 million, according to the report, the highest level since the same month the year before. Two thirds of the buying came from European investors, primarily British and German.

In April, when the explosive rally took off, net foreign purchases increased over the March level by 30 per cent, and "this trend seems to have continued into early May," the report said.

There has been considerably speculation about the role foreign buying has played in the recent high-volume upsurge in the stock market.

The increase in April could be substantially more than 30 per cent because the statistics were based on the settlement date for stock trades. Because a large part of the market turnover took place in the final week in April, when volume averaged 40 million shares a day, the transactions would not be reflected until the May data becomes available.

A stabilization of the U.S. dollar in the foreign exchange markets in March apparently started increased purchases of U.S. stocks by foreigners, with a strong recovery of the dollar in April adding to demand.

Foreign investment policies are heavily influenced by prospects for the U.S. dollar," the SIA research report said.

European sources accounted for $319 million, or 65 percent of the total March purchases, well above the $174 million purchased by the Middle East oil-exporting nations which had been the primary net purchasers of stocks during 1976.

"The available data give no evidence that Mideast investors have curtailed their buying program for U.S. equities but rather that they did not accelerate their purchases relative to overall foreign activity," the report noted.