Financial markets, which started the day betting on a peaceful solution in the Persian Gulf, went on a wild ride yesterday afternoon seconds after Secretary of State James A. Baker III said his talks with Iraqi Foreign Minister Tariq Aziz had been unsuccessful.

The price of oil, which had been trading at its lowest level since Iraq invaded Kuwait Aug. 2, shot up nearly $8 per barrel in a few minutes of frantic New York trading after Baker's announcement, before tumbling again to finish the day almost unchanged from the day before.

Meanwhile, the Dow Jones industrial average, which had been up by more than 40 points before Baker's statement, made an almost 80-point turnaround, finishing the day down 39.11 points, at 2470.30.

Prices of bonds, currencies and precious metals also moved sharply on the news.

Many veteran traders said they had rarely seen such a hasty, dramatic reversal in market psychology, which they said began the instant that Baker began his press conference with the word "regrettably."

"This has got to have been one of the wildest days that I've ever seen, and I've seen a lot," said Peter Beutel of Pegasus Econometric Group Inc., an oil-market analysis and trading firm in Hoboken, N.J. "I've seen a lot of big moves, but I've never seen one this quick."

"In the first comments by Baker, when he said 'inflexibility,' the market tanked 40 points," said John W. Burnett, a senior vice president and stock trader at Donaldson Lufkin Jenrette Securities Corp. in New York. "That word 'inflexibility' had us pressing the sell buttons."

The price moves were perhaps most dramatic in the oil futures "pits" of the New York Mercantile Exchange in lower Manhattan.

Traders there, as elsewhere, had become increasingly optimistic about the chances for peace as the Baker-Aziz meeting stretched several hours longer than expected and news service reports quoted the White House as saying the talks were "substantive."

"When the meeting went on so long, I think the sentiment was that something positive was going to come out," said Rodney Dow, an oil broker for Dow International Energy Corp. in New York.

By 1:55 p.m., just before Baker began speaking to the press in Geneva on the outcome of the talks, the price of a barrel of oil had tumbled nearly $4 to $23.35. On the floor of the New York Mercantile Exchange, there was a strange hush as traders watched the news ticker and talked on telephones to clients who were listening to news broadcasts of Baker's remarks.

As Baker began to speak, "there were audible gasps," one trader recalled -- and then pandemonium.

Traders in the crowded oil pit frantically gave the arms up/palms inward signal that they wanted to buy oil futures contracts, fearful that the unsuccessful talks meant that a war that would threaten Middle East oil supplies was now a virtual certainty.

The price quickly climbed as buyers searched for a level that would flush out sellers. "There were just no sellers," said Tom Bentz, trading director at United Energy Inc. in New York.

"I was watching my screen. I saw it tick at $25, $26, $28 and $30" a barrel, said Cynthia Kase, vice president of commodity risk management at Chemical Bank in New York. Shortly after 2 p.m., just five minutes after Baker started speaking, the price crested at $31 a barrel.

Within an hour, however, the price of oil had come back down, as traders took profits on the run-up. When the oil futures market closed at 3:10 p.m., the price of a barrel of benchmark crude stood at $27.26 -- just 9 cents higher than the closing price the day before, masking the day's frenetic activity.

"What the market is telling us," Beutel joked, "is that the chances of war today are 9 cents more today than they were yesterday."

More seriously, traders said, many participants in the oil market may have made or lost huge amounts of money in the dramatic price move. Those who bought futures contracts at the low end of the day's trading and sold them at the highs were the big winners; those who were "short" -- betting that the price would continue to go down -- got burned in the rapid turnaround.

"We haven't seen a shot fired yet in this war, but we're seeing plenty of blood on the floor of the Merc," Beutel said.

Although the oil market recovered later in the day, the stock market continued lower through the end of its trading session. Analysts said more sabre-rattling by Iraqi leader Saddam Hussein and suggestions by Defense Secretary Richard B. Cheney that the United States might call up another 1 million military reservists fueled the downturn. "The last two hours were just a cascade of bad news," said Laszlo Birinyi, president of Birinyi Associates, a New York-based financial consulting firm that tracks the stock market.

Most measures of stock market performance finished the day sharply lower. Standard & Poor's industrial index fell 4.26 to 364.90, and S&P's 500-stock composite index was down 3.41 at 311.49.

The New York Stock Exchange's composite index of all its listed common stocks dropped 1.64 to 170.97. Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled a heavy 226.81 million shares, up from 175.82 million the day before.

The Nasdaq composite index for the over-the-counter market slipped 1.55 to 357.45. At the American Stock Exchange, the market value index closed at 298.12, down 1.66.

Among individual issues, Digital Equipment fell 1 1/8 to 52 5/8 after announcing it would dismiss about 3,000 employees. Sequent Computer dropped 5 3/4 to 11 1/2 in active trading after a disappointing fourth-quarter earnings projection.

And among blue-chip stocks, International Business Machines was down 2 1/8 to 106 7/8, Du Pont fell 1 1/2 to 33 1/8 and Coca-Cola lost 1 to 43.

Bond prices fell sharply after Baker's announcement, with 30-year Treasury bonds falling 13/16 of a point, or $8.13 per $1,000 in face amount. The yield, which moves in the opposite direction of price, rose to 8.45 percent from 8.38 percent late Tuesday. Corporate-grade and junk bonds also were lower.

On currency markets, the dollar rose sharply against the German mark and Japanese yen after Baker's comments, finishing mixed on the day. And the price of gold, off for most of the day, jumped $10 per troy ounce after the announcement but finished up 90 cents an ounce, at $391.20, on the New York Commodity Exchange. Republic National Bank later quoted a bid of $391.25 a troy ounce, up $1.05 from Tuesday's close.

Staff writer Robert J. McCartney contributed to this report from New York.