NEW YORK, JAN. 17 -- Stock prices soared in heavy trading today in one of the strongest financial market rallies in U.S. history as investors welcomed the U.S. and allied military success in the opening hours of war in the Persian Gulf.

But the volatile nature of the Middle East conflict was reflected in the global financial markets, where the elation that enveloped Wall Street turned to nervousness as traders in Tokyo Friday reacted to news of the Iraqi rocket attack on Israel.

Before the attack was reported, the Nikkei index soared about 500 points on the Tokyo Stock Exchange. After the reports, the seesawing market gave up more than half of those gains in its morning session, closing up 229.58 points. But by early afternoon, rallies resumed when reports from Israel indicated that the missiles had caused little damage. The Nikkei closed up 361.49 points at 23,808.30.

"As it became clear that the Iraqi attack was effectively a bit of a failure the markets have again responded vigorously on the upside," said George Nimmo, manager of equity sales at SBCI Securities (Asia) Ltd.

On Wall Street today, the Dow Jones industrial average rose almost 115 points -- its second-biggest jump ever in a single day -- to close at 2623.51 in a dramatic reversal of the widespread expectation that the outbreak of war would send stock prices down. Volume on the New York Stock Exchange, at 318.9 million shares, was the eighth-highest on record.

The market racked up nearly all of its gains and about a third of its volume in the first hour of trading, as big pension funds and other institutional investors, but not individual investors, flocked to buy stocks with cash that they had been hoarding out of fear that war would trigger a sell-off.

"It became frantic and panic buying," said Jeremiah Mullins, director of over-the-counter trading at Dean Witter Reynolds Inc., a leading New York brokerage house.

"It was just like a dam let loose on the plus side," he said.

Although the Iraqi missile strikes on Israel tonight struck a sour note, U.S. investment professionals expressed cautious optimism that the world's financial markets would view the attacks as a relatively minor setback.

"The bottom line here is that this is a desperation move by Saddam," said Thomas F. Carpenter, senior vice president and chief economist at ASB Capital Management Inc., one of Washington's largest investment management firms. "The capital markets are going to understand that the campaign still is going fairly well," Carpenter said in a telephone interview at after he saw television news reports of the missile strikes.

"Obviously, this is a disappointment -- people got pretty optimistic about the absence of any attack on Israel," said Frank Mastrapasqua, director of research at J.C. Bradford & Co., a regional brokerage house based in Nashville. "There might be some modest pullback in the market if there is an Israeli response, but I would be inclined to say that that would be very temporary. Any pullback in the market would elicit pretty substantial buying."

"If casualties were to escalate, and the war started to bog down, that would be a big negative" for the markets, said Richard Berner, a Salomon Brothers Inc. economist.

Joel Lovett, head of Jacee Securities Corp. in New York, predicted this afternoon, before there were reports that Israel was attacked by Iraq, "If something was to happen to Israel, the market would be down 75 points" on the Dow.

Although bond prices rose in New York, the prices of gold and the dollar plunged, on the expectation that a short war would make them less attractive as safe havens for investors in troubled times. But in Tokyo Friday, following reports of the Iraqi attack, the dollar traded slightly higher to about 133.50 yen. At the close of trading, the dollar stood at 133.60 yen.

Analysts said stock and bond prices shot up dramatically on Wall Street because the early success of the U.S.-led air strikes on Iraq recast the military situation in the gulf in several positive ways and triggered a record-breaking dive in oil prices.

The assaults appeared to strip away some of the uncertainty that had been crippling the financial markets since Iraq's invasion of Kuwait on Aug. 2. In addition, the markets took special satisfaction that the air strikes apparently had reduced Iraq's capability for striking Saudi Arabian oil production facilities.

"The market is basically trading on the notion that this is going to be a much better outcome militarily than had been previously assumed," said Berner.

"Clearly this is not about quarterly earnings," said Lew Glucksman, vice chairman of Smith Barney, Harris Upham & Co. in New York. "If we had lost a carrier, we would be down 300 points today."

The percentage increase in the Dow average was not one of the biggest on record, but the 114.61-point gain on the day was second only to the 186.84-point gain of Oct. 21, 1987, two days after the "Black Monday" crash.

Nearly a third of the trading on the New York Stock Exchange took place in the first hour.

Nevertheless, after intense speculation over whether the outbreak of war would force a suspension of trading to ensure an orderly market, the event that actually delayed the opening on the NYSE today was a one-minute, silent prayer for U.S. forces in the Persian Gulf.

"Our first thoughts today are with our troops taking part in operation Desert Storm, their families and our leadership," NYSE Chairman William Donaldson said.

With plenty of advance warning that war could erupt, there were no serious technical problems despite the heavy volume of trading, although trading opened late in 88 stocks on the NYSE -- because the excess of buy orders over sell orders was so great that it was difficult to set certain prices -- trading had opened in all but two of the 30 stocks that make up the Dow Jones industrial average within 45 minutes of the opening.

"Fundamentally, I am very pleased with the way the people and systems responded. It worked the way we hoped it would work," the NYSE's Donaldson told reporters this afternoon.

Traders applauded and cheered on the floor of the NYSE about 20 minutes before the 4 p.m. closing, when volume passed the 300 million mark.

The U.S. markets followed the lead of the Japanese and Western European markets, where stocks had begun rallying today shortly after initial reports about the war. The German stock market today turned in its best day ever.

As the day wore on in New York, there was very little fresh news, and prices began to fluctuate. The overall trend remained upward, however, and the Dow average closed at its high for the day.

Most analysts said individual investors did not enter the market rally in big numbers. T. Rowe Price Associates Inc. of Baltimore, one of the nation's biggest mutual funds companies, said its business was a bit slower than usual for a Thursday.

But the big, Boston-based mutual funds company Fidelity Investments reported that business was brisk as investors were eager to transfer funds from money market accounts to stock mutual funds after a long period when they were skeptical about prospects for the market.

One way investors responded to positive international news was by putting their money into stocks of other countries. So-called single-country mutual funds, which invest in the stocks of various nations, had one of their best days ever. An index of the country funds' prices showed an increase of 7.2 percent

Among the individual stock winners on Wall Street were General Dynamics Corp. of St. Louis, which produced the ship-launched Tomahawk cruise missiles that opened the attack, and Lockheed Corp., of Calabasas, Calif., builder of the F-117A stealth fighters that bombarded Iraqi military targets.

General Dynamics stock closed up 2 1/4 to 23 3/8 a share on the NYSE, while Lockheed gained 1 1/8 to 34 7/8 a share. McDonnell Douglas, a second-source supplier of the Tomahawk and builder of the F-15 and F-18 jet fighters, posted a gain of 1 to 30 1/8 a share. But today's market also dragged down defense electronics companies on the belief that success in the gulf may dampen the need for future business.

Airline stocks gained as falling oil prices improved their profit outlook.

UAL jumped 9 to 124, Delta was up 4 3/4 to 65, AMR, parent of American Airlines, moved up 4 3/8 to 51 1/2 and USAir jumped 1 5/8 to 17 1/2.

Among the blue chips, IBM bolted 6 3/4 to 115 7/8 after a better-than-expected fourth-quarter earnings report that added fuel to the overall technology sector. AT&T rose 1 5/8 to 31 1/4, Philip Morris rallied 2 5/8 to 52 3/8, General Electric soared 3 3/8 to 58, General Motors gained 1 3/4 to 33 7/8 and Boeing surged 2 5/8 to 48.

The 30-year Treasury Bond jumped to a 2 1/2-point gain, with yields dropping as low as 8.149 percent intraday. Today, gold lost $29.80 to close at $373.40 in New York. The dollar fell against the Japanese yen in New York, to 132.30 yen, down from 136.75 from Wednesday's close.

Among broad stock indexes, gains were also spectacular. The Standard & Poor's 500 closed up 11.80 at 327.97, the NYSE Composite up 5.98 at 178.98, the Value Line up 6.92 at 240.26, the Amex Market Value up 3.83 at 302.72 and the Nasdaq Composite up 10.61 at 375.81.

Correspondent Paul Blustein contributed to this report from Tokyo.