Stock prices zoomed higher for a second straight day yesterday, propelled by investor optimism over plummeting oil prices and the possibility of a federal budget compromise.

Technical factors, including the expiration of options and futures on stock-index contracts, also contributed to the increase.

The Dow Jones industrial average rose 68.07 points, to 2520.79, with much of the increase coming late in the day. The increase, the year's second largest, followed a rise of 64.85 points Thursday.

Sixteen points of the Dow's rise yesterday were posted after the market had closed, as a result of belated processing of stock-index options and futures in what is known as a "double-witching-hour" day.

One widely traded stock, International Business Machines Corp., rose 1 1/8 on trading after the market bell had sounded, finishing at 107 5/8, up 2 1/4.

As stocks were soaring, oil prices were nose-diving.

The benchmark price of a high-quality barrel of crude oil sank $3.01 on the New York Mercantile Exchange, to $33.79, its lowest level in weeks. Heating oil and gasoline futures also were down sharply. For the week, oil dropped $5.90 a barrel.

Oil market analysts said traders appeared to have reduced their expectations of war in the Middle East, following statements by an Iraqi official yesterday that seemed to raise hopes for a peaceful resolution of the crisis.

At the same time, there are signs that world oil supplies have returned to near-normal levels and that demand -- responding to the higher prices -- is dropping.

"This market had overvalued the war premium and people are beginning to consider that and understanding that there is a lot of oil out there," said Thomas Blakeslee, an analyst at Pegasus Econometrics Group Inc. in Hoboken, N.J.

"As long as there's not something to precipitate the war fears over the weekend, we believe this market will continue to move lower," Blakeslee said.

"We're in a bit of a free fall," said Tom Bentz, trading director at United Energy Trading in New York. "There's a good chance this thing could go to $31" a barrel.

That's good news for Wall Street, which has been concerned about the effects of high oil prices on the economy in general and company profits in particular. There also was optimism yesterday that final agreement on a federal budget compromise was at hand.

"I think the market is at last sensing some positive moves," said Newton Zinder, a stock market analyst for Shearson Lehman Brothers Inc. in New York. "Some of the negatives are lifting here."

The rise in stock prices was broad based. Two issues increased in price for every one that declined on the New York Stock Exchange, and the NYSE index rose 3.27 to 170.40. Standard & Poor's industrial index rose 8.56 to 367.42, and S&P's 500-stock composite index was up 6.74 at 312.48.

Consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 255.82 million shares.

The Nasdaq composite index for the over-the-counter market gained 3.33 to 337.36. The American Stock Exchange market-value index rose 1.87 to 293.71.

Among blue-chip issues, Philip Morris rose 1 1/2 to 48 3/8, Coca-Cola was up 2 3/8 to 5 3/4, Procter & Gamble gained 2 1/4 to 80 3/8 and 3M rose 3 3/4 to 109.

The buying spree even helped stocks that had been languishing lately. Sears Roebuck rose 2 to 25 7/8, Woolworth rose 1 1/8 to 27 1/8 and, on the American Stock Exchange, Apple Computer jumped 2 7/8 to 31 3/8.

Among the day's declining stocks was Reston-based Federal Home Loan Mortgage Corp., which fell 5 to 32 7/8. Freddie Mac had fallen 1 7/8 on Thursday after announcing unexpected charge-offs of $124 million against reserves in the third quarter to cover losses in its mortgage portfolios. Yesterday, many analysts cut earnings estimates for the company.

Eli Lilly & Co. dropped 4 to 74 on reports that prescriptions for its antidepressant drug Prozac had fallen sharply after reports that the drug may increase some patients' suicidal tendencies.