The world's major financial markets spent another day in turmoil yesterday as investors continued to flail wildly in the wake of last weekend's moves by the Federal Reserve Board to tighten credit and raise interest rates.

On Wall Street, the stock market plunged sharply amid an avalanche of heavy trading, but later recovered to leave the Dow Jones Industrial Average down 8.27 points -- a shallower drop than Tuesday's 26.45-point decline.

Trading was so frenzied that the volume of stocks bought and sold quickly broke last year's record of 66.37 million shares and delayed the high-speed ticker for more than an hour. Final volume for the day was 81.62 million.

In overseas markets, the dollar fell sharply amid concerns about a U.S. recession and higher oil prices, while gold prices continued to rebound, jumping $20.50 an ounce on the London market to $412 an ounce.

The reaction troubled some analysts, who expressed apprehension that the Fed's latest move might not have the impact the central bank envisioned and that the markets would continue to decline.

However, Paul A. Volcker, chairman of the Federal Reserve Board, who initiated Saturday's action, told an interviewer last night the flurry simply meant that "people are reappraising what is going on," and was no cause for alarm.

"We captured their attention," Volcker said in an appearance on the Public Broadcasting System's MacNeil-Lehrer Report. He predicted that both the stock market and the dollar would be strengthened over the longer run. b

Volcker also attempted to ease fears by some that Saturday's actions would bring on a massive credit crunch in the United States. "It is not our intention to shut off the flow or credit," he said. "We are just limiting excesses."

The Fed chief also brushed aside suggestions that the new increase in interest rates would significantly deepen the recession. "I don't think it's necessarily preordained," he said, that the slump will be "something we can't live through."

Meanwhile, Carter administration officials, nervous about the market reaction, took to the hustings yesterday to try to calm fears that the Fed's weekend actions would significantly deepen the recession.

Treasury Secretary G. William Miller, in Providence, R.I., for a speech; told reporters at an impromptu news conference that the reaction in the markets was no cause for worry, and predicted that the economic downturn would be mild, despite the latest rise in interest rates. Miller has said the recession is already "halfway through."

Charles L. Schultze, chairman of the president's Council of Economic Advisers, told a business economists' group in New York that the move "was needed." He predicted inflation would slow to between 8 and 9 percent next year.

Meanwhile, James T. McIntyre, President Carter's budget director, told reporters the administration should propose a near-balanced budget in January, without a major tax cut, despite last weekend's actions.

McIntyre said he thought it was still too early to change policy in the wake of the Fed's new interest-rate increase. He said achieving a balanced budget is still "a very high priority" in the administration.

The administration also sought to squelch rumors on Wall Street that further credit-tightening actions were pending. A Treasury spokesman said yesterday that no additional moves were being considered.

Both Carter and his top economic advisers have endorsed the Fed's latest credit-tightening actions. The president told a news conference Tuesday he would do "whatever is necessary" to combat inflation.

For all the continued jitters, the behavior of the markets yesterday was less frenzied than on Tuesday, the first full business day in the United States following the Fed's weekend announcement.

Over the past three days, the stock market has plunged a cumulative 48.29 points, or a lost of about 5.4 percent. By contrast, during the big crash of 1929, stock prices lost almost 50 percent of their value in a few weeks.

Analysts both in and outside the administration expressed hope that the initial panic soon would subside and that over the long run the Fed's action would help slow inflation and stem the dollar's slide.

The Fed's last major round of credit-tightening -- its now-famous dollar-rescue plan of last november -- bolstered the dollar's value for several months. That move has been hailed as a resounding success.

The Fed's action Saturday was not without its critics. House Banking Committee Chairman Henry S. Reuss (D-Wis.) warned yesterday that if the interest-rate climb continues, the recession could approach that of 1974-75.

And Republican presidential candidate John B. Connally issued a statement calling today's economic climate "an unmitigated mess." Connally charged that the Fed was being "asked to perform miracles . . . when it is Carter and Congress that are creating the havoc."

Analysts have been divided over the likely impact of the Fed's new actions.

Although most believe the move will deepen the recession, some argue the effect could be relatively mild if inflation pressures abate and rates come back down soon.

The market turmoil yesterday interfered with routine borrowing efforts by the federal government here, and spilled over onto Canadian markets as well. In Toronto, the stock market suffered its second-largest daily loss in history.

In Washington, the Department of Housing and Urban Development announced it was able to sell only $46.9 million in short-term public housing notes out of an offering of $804.7 million -- mainly because interest rates exceeded its ceiling.

In his television interview last night, Volcker also reiterated his warning to the nation's banks to limit their lending for purely "speculative" projects and confine their financing to more productive ventures.

"Banks have in a sense a heavy responsibility," he said. He asserted the Fed was "not cutting off the orderly growth of credit," but merely was trying to rein in excessive loans.