NEW YORK, AUG. 27 -- The Dow Jones industrial average, posting its biggest advance of the year, soared 78 points today as traders, sensing a lull in Mideast tensions, went hunting for bargains.

Buoyed by tumbling oil and gold prices, a sharply higher bond market and big rallies in Japanese and German stock markets, the Dow surged 82 points in the first half hour, gaining strong support from index arbitrageurs. The Dow surged to a 95-point advance at noon before pulling back in afternoon trading.

For the financial markets, it was a day of glory after nearly a month of dour retreat. In addition to hefty gain on the Dow, the U.S. 30-year bond was up a hefty 1 18/32, October crude oil futures were down a full $4 per barrel at $26.91, and on New York's Commodity Exchange, gold for current delivery settled at $388.30 a troy ounce, down $26.70.

But not everyone was pleased by the rally in stocks. Technical traders in particular said volume should have swelled on the advance, whereas the pace of trading actually contracted by almost 40 million shares from Friday's heavy pace.

Moreover, follow-through buying after the initial 82-point Dow surge added only 13 points to the average as it peaked in early afternoon trading, encouraging some fence-sitters to stay away.

At the close, the Dow stood at 2611.63, up 78.71, while advances swamped declines on the Big Board by a ratio of 7 to 1. Volume was a moderate 160 million shares.

"This morning our daily option money-flow indicators identified an unprecedented number of bullish equity situations, with no names on the 'bearish' list," said contrarian trader Bernard Schaeffer, who publishes the Daily Trader at Investment Research Institute in Cincinnati.

Schaeffer said a number of other factors also supported the notion that stocks had reached the end of their recent decline, among them:

The put/call ratio is extremely high.

Friday's rally, continued today, began from a level of crucial support in the broader market.

Media reports featuring the term ''bear market'' have proliferated -- a bullish sign.

"Events over the past two weeks have provided clear evidence that panics and manias tend to last much longer than might first be expected," Schaeffer said. " ... Does it get more bullish than this? I think not," he said.

But skeptics said the rally was a natural extension of Friday's 49-point technical ''bounce'' in the Dow and doubted it would continue for long.

"Monday's early 80-point rise in the Dow looked as ridiculous as the 80-point drops we've been seeing so regularly," said chief trader Dan Murphy at C.J. Lawrence.

"I don't think anything has really changed in the Middle East. But a lot of people have done some number-crunching over the weekend and concluded that many of the good, high-quality growth stocks -- the Boeings and General Electrics -- are simply too low to ignore," Murphy said.

IBM surged 4 to 104 3/8, Procter and Gamble rose 4 to 75 7/8, Merck advanced 3 3/8 to 81, Boeing gained 2 1/2 to 48 3/8, General Electric added 2 1/8 to 63 1/2 and Coca-Cola moved up 2 5/8 to 41 5/8.

Energy stocks held firm despite the steep drop in oil prices. Exxon gained 3/4 to 49 5/8, Chevron tacked on 1/8 to close at 74 3/8, Texaco jumped 1/2 to 61 and Mobil rose a modest 1/4 to end the day at 62 1/4.

The Dow transports rose 38.32 to 908.03, its fifth-largest gain on record, in response to the prospect of lower fuel prices. Among the bigger gainers was USAir, which climbed 2 to 15 3/4.

The Dow utility index, also sensitive to lower interest rates and fuel costs, surged 3.46 to 194.42.

Among broad stock indexes, the Standard and Poor's 500 was up 9.93 at 321.44, the NYSE Composite up 5.13 at 176.18, the Value Line up 7.16 at 246.05, the Amex Market Value up 4.44 at 320.73 and the Nasdaq Composite up 13.94 at 381.27.