A rise in the price of crude oil to nearly $41 a barrel helped send the stock market into a nose dive yesterday, with the Dow Jones industrial average falling 78.22, or 3.1 percent, to close at 2445.54.

The decline was the 11th-worst ever for the widely watched Dow average, and the second-biggest drop this year. The decline in the market as a whole was much broader than the 30 companies in the Dow industrials -- declining stocks outstripped gainers by a 4-1 margin on the New York Stock Exchange.

Most analysts attributed the selloff to stock market jitters about oil prices. In recent weeks, the two markets have tended to move in inverse proportion to each other, as the steady rise in oil prices has increased investors' fears about the effect of high energy costs on corporate earnings and the economy in general.

The price of a benchmark barrel of high-quality crude oil for November delivery touched as high as $40.95 a barrel yesterday before closing at $40.40, a $1.45 increase, in commodity trading on the New York Mercantile Exchange. It was the first time oil had closed above $40 a barrel since Iraq invaded Kuwait Aug. 2 and sent oil prices skyrocketing. The last time crude oil sold for more than $40 a barrel was shortly after Iraq invaded Iran in 1981.

Oil traders and analysts attributed the price rise to Saddam Hussein's threat to retaliate for the killing of 19 Palestinians in Jerusalem by Israeli police. There were worries in the oil market that the Iraqi leader's bellicose comments made hostilities in the Middle East ever more likely.

"Hussein came out with that statement this morning, and that's when we got the really big increase in prices," said Ann-Louise Hittle, an oil markets analyst at Shearson Lehman Brothers in New York.

"I would say generally the industry is of the opinion that the ultimate military solution to this thing is near at hand, and as long as that belief continues to persist, it's difficult to find people who are willing to sell," said Michael McDermott, an oil trader at Paine Webber Inc. in New York.

Gasoline and heating oil prices also rose sharply on the commodities market. If fully passed through by oil refiners, the day's increase could add 3 1/2 cents to the retail price of a gallon of gasoline.

Analysts said Saddam's statements also rattled stock traders, and the decline in the Dow average widened through the day as investors absorbed the news from oil markets. Most of the Dow's decline occurred in a flurry of trading in the last hour of the NYSE session.

There also were doubts on Wall Street about the emergency legislation signed by President Bush to keep the government open for another 11 days. Bush said there was "no assurance" Congress would reach agreement on a $500 billion deficit reduction package.

Larry Wachtel, an analyst at Prudential-Bache Securities Inc. in New York, called the political move a "non-event" and said oil prices were "the minute-to-minute focus of the market," according to the Associated Press.

In other markets, bond prices were lower, the dollar dropped against most foreign currencies and the price of gold declined $5.20 to $389.70 an ounce on the New York Commodity Exchange after rising in London earlier in the day.

While the stock market was down across the board because of oil-price concerns, several stocks suffered big losses on their own news.

Motorola Inc. was the day's most actively traded NYSE stock, falling 7 to 52 3/4 after reporting poorer-than-expected third-quarter earnings and settling a patent infringement battle with Hitachi Ltd.

UAL Corp. fell 3 1/4 to 88 after its board rejected an employee buyout bid -- the fourth failed attempt to take over the airline company in three years.

Travelers Corp., which has been sliding in recent days because of concerns about its financial condition, dropped another 1 3/8 to 13.

More than half of the 30 stocks in the Dow industrial average had losses of at least a point, led by IBM, down 4 1/8 to 105 3/8; Eastman Kodak, off 2 3/4 to 35 1/4; Merck, which fell 3 1/4 to 75 1/8; and Procter & Gamble, which declined 3 1/8 to 76 7/8.

The NYSE's composite index of all its listed common stocks fell 4.24 to 167.41. Consolidated volume in NYSE-listed issues, including trading on regional exchanges and in the over-the-counter market, totaled 176 million shares. Standard & Poor's industrial index fell 10.51 to 358.67, and S&P's 500-stock composite index fell 8.38 to 305.10.

The Nasdaq composite index for the over-the-counter market fell 9.03 to 339.11. At the American Stock Exchange, the market value index fell 3.46 to 303.05.