Nervous investors around the world dumped shares yesterday in a massive selloff that pushed the U.S. stock market into its second-biggest one-day plunge, surpassed only by "Black Monday" a week ago.

The Dow Jones industrial average fell 156.83 points, or 8 percent, to 1793.93, losing much of the ground it had recovered since Black Monday's close of 1738.74. Analysts said the heavy selling was initiated by foreign investors, who unloaded shares on exchanges in Hong Kong, Tokyo and London before leading the broad-based assault on stocks traded on all major U.S. exchanges.

{In early trading today, Tokyo stock prices recovered slightly. Details on Page A15.}

The decline yesterday in the U.S. stock market was driven throughout the day largely by the bad news from overseas, market analysts said. The Hong Kong stock market, which had not been open for trading in a week, lost 33 percent of its market value in a shortened trading session.

The Hong Kong drop was followed by selloffs in Tokyo and London, which led to a 93-point decline in the Dow in the first hour of chaotic trading on Wall Street. President Reagan's initial meeting with congressional leaders on federal deficit reduction apparently did little to calm investor fears.

In a stunning demonstration of the market's weakness yesterday, the volume of trading in New York Stock Exchange companies whose stock prices declined yesterday outnumbered the volume of trading in companies with rising prices by a lopsided 296.3 million to 1.9 million, with the remainder unchanged. A total of 308.8 million shares were traded on the New York Stock Exchange.

Such extremely heavy selling in a declining market underscores the deep pessimism motivating traders. Falling stocks typically attract buyers, who stabilize prices, but there was little evidence of that yesterday.

Continuing heavy trading volume prompted stock exchanges to extend to the end of the week their schedule of closing at 2 p.m., two hours earlier than normal. Exchange officials said Wall Street firms need additional time to process the enormous backlog of trades.

Adding to the stock market's woes was a Commerce Department report that consumer spending fell 0.5 percent last month, the first decline since January. While the Commerce Department also reported that personal income was up 0.7 percent and the National Association of Realtors said home sales were up 1.2 percent, analysts predicted consumer spending would decline in the months ahead because of the elimination since late August of about $1 trillion in the value of stocks.

There were so many sell orders early yesterday that numerous stocks could not begin trading when the 9:30 a.m. opening bell rang at the New York Stock Exchange. Once stocks did open and some sense of order was established, Wall Street was a one-way street, as stock prices headed steadily down most of the day before the Dow's decline accelerated and it lost 36 points in the last hour of the abbreviated trading day.

"Hong Kong precipitated the aftershock of last week," said Byron Wien, U.S. investment strategist with Morgan, Stanley & Co. "The bulls have been so beaten up here they can't have much conviction. The bears are worried that their fears may be borne out. It is a very nervous environment."

"There is selling everywhere," said A.G. Edwards market analyst Alfred Goldman. "The market psychology is a big increase in short-term fear. No one knows where the bottom is."

Kidder, Peabody analyst Dennis Jarrett said yesterday's selloff was different than the one that gripped the markets on Black Monday, Oct. 19, when the Dow fell 508 points. He said that despite the huge drop yesterday, the level of investor fear has diminished.

"I don't think there is any panic environment out there," Jarrett said. "This is just a continuation of a selloff." Jarrett predicted that the Dow average would decline further soon to test Black Monday's close of 1738.74. "I think right now we just have to continue monitoring the situation and see how things hold together as we test the lows."

Drexel Burnham Lambert Chairman Robert Linton said one of the driving forces behind heavy foreign selling of U.S. stocks yesterday was continued uncertainty about the future value of the dollar relative to other currencies. He said the market perceives a lack of international economic cooperation that could lead to a weaker dollar. He said many foreign investors are reluctant to buy U.S. stocks because they fear losses from a continued stock price decline and drops in the dollar, which lower the return they receive in their own currencies.

On the other hand, Linton said bond prices continued strong, fueled by the Federal Reserve Board's commitment to supply the economy with the cash needed to push interest rates down and keep business conditions vibrant. Long-term U.S. government bond prices rose as their yields dropped to 8.9 percent, down from more than 10 percent when the bond price rally began. (Bond prices and interest rates vary inversely; lower interest rates mean higher bond prices.)

So many investors are moving funds into short-term Treasury securities that yields at yesterday's weekly auction of three-month bills plunged to 5.22 percent from 6.84 percent a week ago. The Federal Reserve yesterday sought, as it often does, to add cash to the nation's banking system by buying government securities from bond dealers in exchange for cash. The Fed announced its intention to buy securities unusually early in the day because it feared that, given the strong demand for Treasury bills, the dealers might not have sufficient quantities of bills on hand at the normal intervention time, which is shortly before noon, analysts said.

Linton said that with the latest drop in stock prices, small investors should stay on the sidelines. "It is too late to sell," he said.

The 8 percent drop in the Dow Jones industrial average yesterday was the eighth-biggest percentage drop ever, as declining issues outpaced advancers 13.5 to 1 on the NYSE. The broader New York composite index fell 11.34 to 127.88.

The American Stock Exchange composite index fell 24.54 to 239.67, its second worst drop ever; the Nasdaq composite index fell 29.54 to 298.91.

On foreign exchanges, stock price averages fell 33 percent in Hong Kong, nearly 5 percent in Tokyo, and about 6 percent in London.

IBM, which has traded as high as 175 7/8 in the last year, closed at 112, down 8 3/4; CBS fell 13 7/8 to 145 3/8; Coca Cola dropped 3 1/2 to 35, Merrill Lynch fell 1 7/8 to 25, and Ford Motor plunged 6 to 68, even though Ford reported increased earnings.

Among local companies, Washington Post, which has traded as high as 269 in the last year, fell 24 to 165; Marriott closed at 26 3/8, down 5, Washington Gas lost 1/2 to close at 22, while Pepco closed at 22, down 3/4.

One of the positive factors in the stock market yesterday was the continuation of stock buyback announcements by major corporations. More than 100 new buyback plans were announced. {See listing on Page C7.} The buybacks have occurred because corporations believe that the depressed stock prices make the use of corporate cash to buy their own shares an attractive investment. The purchase of the shares also helps to drive up stock prices, a defense against unwanted takeover attempts.

Local companies announcing buybacks yesterday including Hechinger Co., the Landover, Md.-based retailer, and Richmond-based Signet Banking Corp.

Analysts said the buybacks are one of the few elements contributing to investor confidence in the stock market.

Investment firms operating mutual funds said individual investors remained active yesterday. At Fidelity Investments in Boston, a spokesman said there were 182,000 phone calls from investors; on a normal day there are about 110,000. Buyers outnumbered sellers 7 to 6 in stock funds, according to Fidelity vice president Rab Bertelson.

At T. Rowe Price in Baltimore, there were about 10,000 calls, double the normal daily volume of 5,000, but still far short of Black Monday's 15,000 calls.

When investors sell their shares back to mutual funds, the funds, which own large portfolios of stock, must sell some of their holdings to raise cash.

In a gloomy environment, sometimes no news is good news. Securities and Exchange Commission Chairman David Ruder said there was no negative news to report about problems at major brokerage firms in connection with the processing deadline yesterday for trades initiated on Black Monday.

Stock trades must be processed within five business days, which means yesterday was the deadline for processing more than 604 million shares that were traded Oct. 19. Today is also expected to challenge Wall Street's back-office employes and computers, since it is the deadline for completion of processing last Tuesday's record 608-million share trading day.

The major problem leading up to the clearance and settlement process had been the large number of buy and sell orders that did not initially match up. Brokerage house crews and stock exchange personnel worked overtime and during the weekend to help clear up those problem trades, which occur because of disagreements between traders and lack of capital to meet trading obligations.

The NYSE said that 3.4 percent of the 600 million shares traded Oct. 19 were intially unmatched, but that 90 percent of the mismatches finally had been cleared up. In normal circumstances, the NYSE said, an estimated 1.7 percent of their trades are mismatched.

Robert Schultz, head of planning and operations at the National Securities Clearing Corp., said the settlement process worked exceedingly well. A similar view was voiced by William F. Jaenike, head of operations at the Depository Trust Co. Both companies play key roles in settling trades.

SEC Chairman Ruder endorsed the decision by the exchanges to close early for the rest of this week, citing the need for additional time to clear up the remaining problem trades.

"There are apparently large numbers of questionable trades still in existence," Ruder said. "The firms worked extremely hard over the weekend but they were not able to get them all finished. We have not had any concern expressed about the financial soundness of any major firm as a result of this ... process. As far as we have gone through the process, nothing serious has emerged."

The NYSE continued yesterday to urge its member firms not to use the exchange to conduct computer-directed program trading. The computer-directed trading capitalizes on price differences between markets by ordering the simultaneous sale of stocks and purchase of stock index futures contracts. Trading in the stock index futures contracts, notably the S&P 500 futures traded on the Chicago Mercantile Exchange, has been blamed for increasing volatility in the stock market.

The S&P 500 contract represents a basket of 500 stocks and gives investors a way to bet on the future movement of stock prices. The Merc and the Chicago Board Options Exchange have taken steps in recent days to limit volatility caused by trading in the stock index futures.

Washington Post staff writers John M. Berry and Stan Hinden contributed to this story.