NEW YORK, NOV. 30 -- The price of oil dropped more than $4 a barrel today in response to President Bush's offer to send Secretary of State James A. Baker to negotiate with Iraq.

The oil-price decline triggered an enthusiastic round of buying on the stock market that propelled the Dow Jones industrial average up by more than 40 points.

Stock prices have fluctuated in seesaw fashion in relation to oil in the four months since Iraq invaded Kuwait, reflecting investor concerns about the huge effect that oil prices have on corporate profits and the economy.

"This is really like having manna from heaven," Jack L. Solomon, a vice president and technical market analyst at Bear Stearns & Co., a large New York investment firm, said of today's oil price decline.

"On a short-term trading basis, the variable that short-term traders fix themselves on every day is oil prices. It's sort of the pulse of whether there's going to be a war or not," said Michael Metz, chief market strategist for Oppenheimer & Co., a New York investment firm. "The conviction is, if there's not going to be a war, then you can have a decent rally, but if you do have a war, then oil prices go up and presumably stock prices come down."

Analysts said the oil price drop -- which traders said was accelerated by a variety of technical factors -- reflected a new-found sense in the oil market that there will be no hostilities in the Middle East until at least the Jan. 15 deadline imposed Thursday by the United Nations.

"The price is free to go where it would go without there being the threat of war," said Peter Beutel, an analyst at Pegasus Econometrics Group Inc. in Hoboken, N.J. However, he and other analysts warned that lower prices are likely to be short-lived unless there is tangible evidence of a possible settlement within the next few weeks.

The price of high-quality crude oil for January delivery finished the day on the New York Mercantile Exchange at $28.85 a barrel, a $4.06 decline. It was the second-largest one-day drop ever. The wholesale price of heating oil fell 7.65 cents a gallon on the exchange, to 85.87 cents, and the wholesale price of unleaded gasoline fell 5.79 cents, to 77.58 cents. However, any potential cut in retail gas prices caused by today's decline will be all but absorbed by the 5-cent-a-gallon increase in the federal gasoline tax that goes into effect Saturday.

Traders said the decline in oil prices today was exacerbated by its timing, coming as it did on the last day of the month. That forced many traders to close out positions -- in effect, clear their books of some promises to deliver oil in the future -- and increase the volume of sales.

The decline also picked up speed as the price moved below about $32 a barrel, which many computerized trading programs had identified as a benchmark.

In addition, one trader suggested, some oil brokers may have been encouraged to generate more trades today to increase their monthly commissions, which are calculated on trades through the last day of the month.

"Brokers try to urge their customers to liquidate their positions so they can run up their commissions," said the trader, who requested anonymity. "I don't think you can be a commodity fund manager and not be aware that this is the last day of the month and this is the day when paychecks are calculated."

Perhaps the main reason the stock market has reacted so acutely to oil price movements in recent months, analysts say, is concern that higher oil prices, by adding to inflation, will push up interest rates, squeezing profits and making stocks less attractive as investments.

"This puncturing of that {oil price} bubble will help the banking system, and alleviate fears that we have of a credit crunch," Bear Stearns's Solomon said.

The Dow closed at 2559.65, up 40.84, while advances outpaced declines by a ratio of nearly 3 to 1 on active volume of 192 million shares.

Among companies in the news, General Motors lost 7/8 to close at 36 5/8 following its announcement Thursday that it would trim production still further in December.

Motorola skidded 3 3/8 to 50 1/2 after analysts lowered their earnings estimate.

Time Warner shares lost 3 3/8 before closing at 82 1/2 after the company said it has been unable to raise cash through strategic alliances.

NL Industries rose 1 3/8 to 12 3/8 in anticipation of Lockheed's board meeting Monday at which an NL takeover bid would be considered.

The Dow transports rose 24.97 to 853.00, while the utilities rose 3.84 to 212.09, as lower oil prices buoyed airline stocks. UAL added 3 5/8 to close at 97 1/2, AMR added 3 to close at 47 1/4, Delta rose 3 to 57 and USAir was up 7/8 to 13 7/8.

Among broad stock indexes, the Standard & Poor's 500 surged 5.80 to 322.22, its highest close in nearly three months, while the NYSE composite rose 2.92 to 176.06, the Value Line rose 3.06 to 233.82, the Amex Market Value rose 1.92 to 301.79 and the Nasdaq Composite rose 3.31 to 359.06.