The dollar suffered its largest decline in more than a decade yesterday, and worldwide financial markets were thrown into chaos, following the decision of five major industrial nations to try to drive down the value of the U.S. dollar.

The reaction was dramatic on several fronts. The dollar fell to its lowest level in weeks; gold prices rose nearly $10; the Dow Jones industrial average jumped 18.37 points -- the biggest daily advance in three months, and long-term bond prices fell while short-term markets rallied. The dollar slid about 5 percent on European markets. Dealers said markets were plunged into turmoil because there was no consensus on how long the dollar would fall.

The dollar on New York markets plummeted from 2.84 West German marks on Friday to 2.69 yesterday, the largest absolute 24-hour fall since the United States went to a floating currency system in 1973, market analysts said. That was equivalent to a 6.1 percent drop.

The largest percent decline was Nov. 1, 1978, when the dollar fell from 1.88 marks to 1.77, a 6.2 percent drop, market analysts said. However, during the 1978 fall, the absolute decline was smaller than yesterday's fall and the dollar was much weaker, analysts said.

The dollar also fell 4.29 percent against the currencies of its major trading partners, the sharpest decline against those currencies since 1973.

At the end of the day, the dollar had lost about 7 1/2 cents against the British pound. The dollar dropped more than 12 Japanese yen from 238.949 on Friday.

Some currency market analysts in New York and abroad said that it was unclear how far the dollar would plummet and whether the government would be able to halt a sharp decline. Others said the dollar's one-day retreat would be short-lived without intervention in currency markets by leading central banks.

Rumors of central bank intervention were rampant and conflicting statements issued by the Reagan administration and foreign officials yesterday on precisely how the governments expect to drive the dollar down created an air of uncertainty all over Wall Street, financial analysts said. At first, some bond traders thought the announcement Sunday was good; then their sentiments changed.

The chief financial officers of the United States, Britain, West Germany, Japan and France announced on Sunday that they plan strong, coordinated intervention in foreign exchange markets to try to push down the value of the dollar.

"There's an element of being shell-shocked here," said William V. Sullivan Jr., a vice president at Dean Witter Reynolds Inc. "They're trading in cataclysmic fashion. Bonds have whipsawed all day. Nobody knows for sure how substantive the announcement is" or how successful it will be.

Some market analysts said they were surprised that the governments would decide now to try to push down the dollar, since the dollar had already begun to weaken. Generally, such action is taken when the dollar is strengthening. Analysts speculated that the move by the five nations was more political than economic.

"The meeting was unexpected," said William Griggs, part owner of Griggs and Santow in New York. "It took place at a time when there already was uncertainty about" the dollar's trend. "The renewal of joint action came out of nowhere. It was aimed very much at protectionist concerns. Whether it has any more substance than that, I don't know."

The market in long-term bonds ended weaker after an initial euphoric rally, as traders held back because of uncertainty over what the dollar would do, said Robert Hormats, a vice president at Goldman Sachs. Prices in the short-term money markets rallied as people moved from bonds into short-term instruments, analysts said.

Stock prices rose because a lower dollar would be a boost to U.S. industry, Hormats said, and gold prices rose from fear that the nations' actions would lead to higher inflation in the United States and thus increase gold prices even more.

Hormats and other analysts said that they are waiting to see if any of the central banks intervene and how committed the countries are to pushing down the dollar.