Amid fears of rising interest rates, the Dow Jones industrial average plunged 91.55 points yesterday, the biggest one-day drop in stock market history.

Market analysts attributed the decline, half of which took place in the last hour of trading, to fears about the impact that higher interest rates and inflation could have on the economy. Those concerns were magnified yesterday when West Germany's central bank disclosed plans to push up interest rates, a move which could lead to higher rates in the United States.

Higher interest rates make bonds and other fixed-income securities a relatively more attractive investment than stocks. The average yield on the Treasury's four-year notes sold yesterday rose to 9.24 percent -- the highest in two years -- causing analysts to wonder how much money investors will move out of the stock market and into high-yielding bonds in the days and weeks ahead.

Analysts said yesterday's record 91.55-point drop to 2548.63 also was the product of Wall Street rumors that Robert Prector, a widely followed stock market prognosticator, had predicted that if the Dow average dropped below 2600, it could fall to 2300.

The market drop yesterday was broad-based, with losers outnumbering gainers on the New York Stock Exchange by 4-1. Market indices on all other major exchanges declined as well.

However, several analysts said the stock market rally, which began in August 1982, appears to be going through a short-term downward dip, rather than beginning a long-term decline.

They also pointed out that while the 91.55 drop in the Dow average of 30 blue-chip stocks is a record loss on an absolute basis, there have been other daily percentage losses that exceeded yesterday's 3.5 percent decline in the Dow. The biggest one-day drop before yesterday was the 86.61 point plunge in September 1986.

Yesterday's drop occurred on Wall Street as Securities and Exchange Commission Chairman David S. Ruder delivered a speech in Chicago proposing that, if necessary, all trading in stocks and related options and futures be halted to prevent a free fall in stock prices, which he referred to as a market "meltdown." The risk of a free fall has increased in recent years with the growth in computer-driven program trading, a technique that involves the purchase or sale of large numbers of stocks in conjunction with the purchase or sale of stock index futures contracts.

Ruder said the proposed trading halts would last a short period of time, "perhaps 30 minutes or an hour" but could be used to "decrease panic."

What should individual investors watching yesterday's stock market activity do with their stocks?

"One should take a longer range view of the market and not be overly concerned by short-term trading movements," said Eliot Benson, vice president and director of research at Washington-based Ferris & Co. "We did see 91 points knocked off the Dow Industrials, but {trading} volume was not exceedingly heavy." Volume on the NYSE yesterday was 175.6 million shares.

"The investor should stand pat at this point and be prepared to see prices very volatile," Benson continued. "I think if prices were to drop a good bit more, there would be some good buying opportunities. The investor in this market should hold onto his shares. I think the sun will come out soon and we will see prices recovering."

Others disagreed with Benson's watch-and wait philosophy.

"I think the little guy, if he is an unsophisticated type person, is in for a great period of turmoil," said Bear, Stearns & Co. analyst Lou Smith. "It has been essential for the last three years to grasp that the stock market has been powered mostly by blue chip issues and not the little stocks.

"The guy who is hoping his little stocks will come back after they have come down is probably making a mistake staying with them," Smith said. "The fellow who has the blue chip stocks, the ones with large capitalizations so they are interesting to institutions and foreign investors, had best stick with them. But even there, some refinement is necessary."

"For the fellow who can't take any risk, obviously he should be in short-term {fixed-income} bills or notes, ride it out and see what is going to happen," said Sid Wachtel, chairman of the Washington-based brokerage firm bearing his name. "It appears as if the bullish {upward} forces ... will get back on the saddle again. I see this as a correction in this upward sweep.

"What goes up has to come down at some point," Wachtel said. "You have to measure your decline in terms of how high up you have gone. The Dow Jones is at 2548.63, which is 1,000 points higher than it was at the beginning of last year."

Among the well-known stocks that dropped yesterday, IBM fell 5 1/2 to $151 a share, Dupont fell 4 1/4 to $118 1/2 a share, Eastman Kodak fell 3 1/8 to $101 a share, General Electric fell 3 to 59 5/8 and Procter & Gamble dropped 4 to 99 1/2 a share.

Tenneco, the most actively traded stock on the NYSE, moved up 1 3/8 to 61 1/4 a share after a published report said the stock was undervalued and could be a candidate for restructuring. Sterling-based Radiation Systems was up 1 to 12 3/4, after an investor group that owns 8.9 percent of the company said it might make a takeover bid.

The American Stock Exchange Index dropped almost 4 points to 355.44 while the Nasdaq composite index lost more than 6 points, closing at 447.51. The Standard & Poors 500-stock index fell 8.87 to 319.22, while the New York Composite Index lost 4.46 to 178.98.

"It was a disaster," one market analyst said.