NEW YORK, OCT. 11 -- The Dow Jones industrial average fell today to a 17-month low, down 42.82 points at 2365.10, amid continuing concerns about the Mideast, a sharp rebound in oil prices, the federal budget impasse and a skittish bond market.

It was the Dow's third sharp drop in a row, bringing its loss since Tuesday to 158.66 points, and it left the industrial average down almost 20 percent since Iraq invaded Kuwait on Aug. 2.

In Tokyo Friday, share prices continued to fall sharply as traders reacted to the sell-off in New York. The 225-issue Nikkei stock average lost 449.35 points, or 1.99 percent, closing the morning session at 22,136.28. The index lost 909.48 points on Thursday.

In New York, the Dow Jones industrial average of 30 issues has lost nearly 160 points, or more than 6 percent, since Tuesday on increasing tension in the Persian Gulf. On Thursday, the index fell 42.82 points to close at 2,365.10

"The index began falling as soon as the early session started," said Tomoya The New York Stock Exchange's rule curbing computerized program selling was triggered for the third straight day when the Dow fell 50 points in the early afternoon.

Declining stocks inundated advancing issues on the Big Board by more than 4-to-1, as volume rose to a moderately heavy level of 180 million shares from 167 million on Wednesday.

The fall on the over-the-counter market continued to outpace that of the NYSE. The Nasdaq composite index today slipped 7.64 points, or 2.3 percent, to close at 325.61, a new low for the year. The last time the index was this low was December 1987. Since March of this year, it has lost 33 percent.

Traders said one factor stemming the sharp decline was the government's auction of $5 billion in 30-year Resolution Funding Corp. bonds intended to provide funds for the government's savings & loan cleanup. Analysts said the auction did not receive as poor a reception as anticipated, getting an average yield of 9.33 percent. By day's end, the 30-year Treasury bond was down 7/32, in contrast to a 12/32 gain posted as stocks opened.

In early trading, both bonds and stocks were buoyed by a Washington Post report that Federal Reserve governors definitely agreed last week to cut short-term interest rates by 25 basis points when a credible federal budget-reduction package is enacted into law.

But as November crude-oil futures surged $1.01 per barrel to $39.70 at their opening, stocks began to fall. Oil prices closed the day up $1.73 at $40.42.

The dollar also fell against most major currencies, finishing in New York trading at 129.47 yen, down 0.01 yen from Wednesday's close, and at 1.5138 German marks, off 0.014 marks.

President Bush appeared not to have helped the stock market by trying to clarify his stand on the capital gains tax. Bush said he would favor swapping an income-tax increase for the wealthiest individuals for a steep cut in capital-gains taxes, but added he did not believe a viable compromise was possible on these issues.

The spotlight on third-quarter earnings reports focused on Chemical Bank, which reported a loss of 69 cents per share, compared with a $12.89 loss a year ago. Results included a $250 million addition to loan-loss reserves, up from $82 million in the second quarter. The bank also clipped its quarterly dividend to 25 cents per share from 69 cents. The stock tumbled 1 3/4 to close at 13 1/4 despite its extremely oversold technical condition of the past several weeks.

Among other large money-center banks, Bank of New York slipped 5/8 to 17 after reporting earnings for the latest quarter at 90 cents per share compared with a $4.10 loss a year ago, but nonperforming assets rose to $1.47 billion from $1.33 billion in the second quarter. Manufacturers Hanover fell 1 7/8 to 20, First Chicago lost 1 1/8 to close at 15 1/4, and First Interstate slipped 1 1/4 to 18 1/8.

NCR Corp. was a conspicuous early casualty, following a couple of negative brokerage reports, losing 2 3/8 at 50 3/4.

IBM stock lost 2.4 percent of its value, closing off 2 1/2 at 101. Analysts said the drop was most likely in sympathy with that of rival computer maker NCR. The two companies will report third-quarter results Monday.

Among broad stock indexes, the Standard & Poor's 500 fared somewhat better than the Dow, falling 4.93 to 295.46, while the NYSE Composite lost 2.77 to close at 162.20, the Value Line fell 4.57 to 216.74 and the Amex Market Value slipped 5.55 to 293.71.