TOKYO, JAN. 17 (THURSDAY) -- Stock and bond markets rose sharply throughout Asia and Europe in hectic trading today, buoyed by initial reports of success in the U.S.-led attack on Iraq.

Propelling the market surge was news reports indicating the Gulf war might be short and that damage to Middle East oil-producing facilities would likely be minor. The Nikkei index of blue-chip Japanese stocks rose nearly 4.5 percent. The Singapore stock market soared more than 5 percent. German and French share prices were up more than 6 percent in afternoon trading, and London stocks were up 2.5 percent. Oil prices plunged worldwide.

"Investors clearly realized that the U.S. was winning a sweeping victory," said Tadao Nishioka, general manager of the stock investment department at Nippon Life Insurance Co.

In awed tones, Nishioka added: "The news about how the U.S. forces destroyed the Iraqi military installations, including missile sites, was a big surprise for us. We were very worried about a counterattack by Iraqi missiles against Saudi Arabia and Israel. But it never happened."

The markets' surge followed a brief plunge in reaction to the first reports that air strikes had begun. About half an hour before the 9 a.m. opening of the Tokyo stock exchange, newswires and TV screens began reporting anti-aircraft fire and bomb attacks in Baghdad, and the Nikkei index sank about 1.5 percent in the first 30 minutes of trading.

But the mood soon changed as headlines brought further news: "U.S. Bombs Iraqi Oil Refinery ... Iraqi Nuclear Facilities Destroyed ... CNN Reports 'Decimation' of Iraqi Elite Troops ... Pentagon Calls Iraqi Resistance to Air Attack Limited."

By around 10:30 a.m. Tokyo time, major institutions began a buying spree, and the Nikkei index ended the day up 1,004.11 points, closing at 23,446.81.

Analysts warned that bad news would cause a swift downward reversal. But in market after market, a resounding verdict was issued that the Gulf crisis will soon be resolved in Washington's favor.

Gold, a traditional haven for investors at times of trouble, fell by more than $20 an ounce in Hong Kong, closing at $381.50 an ounce. Gold opened at 383.50, down $19.50 an ounce at the morning fixing.

The U.S. dollar, another refuge for nervous investors, dropped to 134 yen in Tokyo, down 2.35 yen, reversing an early-morning rise. Bonds rose in all major markets.

On the London International Petroleum Exchange, the price of the benchmark Brent North Sea blend of crude oil opened at around $23.50 a barrel, dipping below the rate that prevailed before the Aug. 2 Iraqi invasion of Kuwait. In afternoon trading the price of Brent Sea crude had dropped $7 a barrel to $21.60.

"The market's performance reflects the fact that the allies had a very successful night," said Jeremy Graham, vice president for U.K. equities at the London branch of Salomon Brothers. "But the subsequent reaction, which has sort of tempered the market's enthusiasm, is the feeling that Saddam Hussein is so unpredictable; there's a niggling fear that he might have something up his sleeve. Until he admits defeat, I think people will continue to temper their enthusiasm."

Early and firm action by government authorities in Tokyo helped to boost the markets in the morning when the attack was still in its early stages. In an effort to reassure investors that plenty of cash would be available, the Bank of Japan injected about $4.4 billion into the banking system.

Bank of Japan Governor Yasushi Mieno pledged that the central bank would take appropriate steps to calm any volatility in the currency and money markets. Other central banks, including the U.S. Federal Reserve, were believed to be poised to take similar action in other markets if necessary.

But the Tokyo market proved to need no such help. "A key thing was a story from CNN reporting that Iraqi tracers weren't even reaching the jets that were flying over Baghdad," said Greg Bundy, manager of equity trading at Merrill Lynch & Co.'s Tokyo office.

That news provided one of the first signs that U.S.-led multilateral force might win a quick victory over Saddam Hussein's troops. "The thinking here is that if the allied forces have a victory in, say, a week, that won't do any damage to oil prices. And the only key factor to investors in Japan is what happens to oil prices," said Peter Tasker, trading strategist at Kleinwort Benson International.

But the markets remain vulnerable, especially to any hint of a successful Iraqi raid on Saudi oil fields. "At this time, we've had all the good news," said Bundy of Merrill Lynch. "Any piece of bad news, and the market would go completely the other way."

Although virtually everyone in the financial markets was expecting war to erupt before long, the news nevertheless caught traders by surprise.

Tasker of Kleinwort Benson International said that around 8:30 a.m., his firm was holding its usual morning meeting "discussing all sorts of mundane things like machinery orders and U.S. inflation." But when Cable News Network began reporting antiaircraft fire and bombing in Baghdad, traders rushed to their desks and began manning the phones.

Special correspondent Yasuharu Ishizawa contributed to this report.