The stock market shrugged off a new drop in the dollar and rallied across a broad front yesterday, sending the Dow Jones industrial average up 91.51 points, a dramatic 5 percent gain.

The Dow closed at 1938.33, about 200 points higher than its closing mark on Oct. 19, the day the Dow dropped 508 points in a wave of panic selling. But the Dow remained 784.09 points below its peak of 2722.42 in August.

The dollar fell in Tokyo to its lowest level against the yen since the late 1940s amid speculation that officials of the United States and its allies would meet soon to realign exchange rates.

The U.S. currency dropped to 137.55 yen in Tokyo from 140.75 Wednesday. In Frankfurt, the dollar dropped to 1.7170 West German marks from 1.7389. {Story on Page F1.}

Market analysts credited yesterday's rise in stock prices to a partial restoration of confidence among investors, signs that the Federal Reserve was easing credit and paving the way for lower interest rates, and renewed hopes for action on the federal budget deficit.

These factors encouraged a new round of bargain-hunting, the analysts said, as investors and traders believed they could ignore the downward move by the dollar.

A falling dollar raises the possibility that interest rates will have to rise to attract funds from foreign investors. Higher interest rates can cloud the outlook for corporate earnings and make bonds more attractive than stocks. As interest rates rise, prices soften for bonds paying lower rates.

But the bond market also rallied yesterday despite the dollar's weakness, with the key 30-year Treasury bond gaining $10 for every $1,000 of face value. Yields, which move in the opposite direction from bond prices, dropped to 9.04 percent on that bellwether issue, down from 9.14 percent.

Boosted by early news of the Wall Street rally, prices rose slightly in London yesterday, with the London Stock Exchange's main indicator gaining 1.4 percent at the close. In early trading today, stock prices soared on the Tokyo Stock Exchange, in large part due to the Wall Street rally; one key market indicator was up 2.6 percent in afternoon trading. Prices also rose on the Hong Kong Stock Exchange, where one market index was up 5 percent after an hour of trading.

Volume on the New York Stock Exchange shrank to 259.3 million shares yesterday from 279.4 million Wednesday, and trading once again was shortened by two hours to allow brokerage firms to handle paperwork.

The smaller volume yesterday was taken as a sign that the market was returning to normal after being engulfed by several 600 million share days.

Steady buying kept the closely watched Dow industrials on the plus side throughout the session.

In the broad markets, gainers held a solid lead over losing stocks. Stocks that advanced were ahead about 4 to 1 on the New York Stock Exchange and about 2 to 1 on both the American Stock Exchange and the Nasdaq over-the-counter market.

The market's performance contrasted with its showing earlier this week, when gains were limited to the Dow and other blue-chip stocks.

"The market is putting out a good message, that the turmoil is over and confidence is being rebuilt," said Eugene Peroni Jr., analyst for Janney Montgomery Scott. "I think investors may start to feel there are real bargains out there, not just traps."

Peroni, whose general tendency is to be bullish, said he believed that the Dow would rise to the 2300 level in the next six months.

David M. Jones, an economist at Aubrey G. Lanston & Co. in New York, said the most powerful influence on the market yesterday was a growing awareness of the chances for lower interest rates. The Federal Reserve, he said, "has opened the floodgates and is pumping money {into the economy} as fast as it can."

Lower interest rates, he noted, are good for stocks because they lower the cost of money used by corporations and by consumers to make purchases.

Daniel C. Kriser, senior vice president at Rodman & Renshaw Capital Group in Chicago, said he has seen a dramatic turnaround in over-the-counter issues, which he watches closely. "The smart money is coming in. There are an awful lot of bargains out there," he said.

Another reason for the change, Kriser said, was a slowdown in margin calls, which have caused heavy selling by investors who lost money on their stocks.

Investors can buy stocks by putting up 50 percent of the cost -- buying "on margin" -- and borrowing the rest from the brokerage firm. But when the value of the stocks falls, the investors must put up more margin money; if they are unable to find the cash, their stocks are sold out from under them.

Kriser said the calmer trading is restoring investor confidence in the over-the-counter market, where customers and market makers had problems getting each other on the telephone during the height of the so-called Black Monday panic.

The National Association of Securities Dealers, which runs the over-the-counter market, has installed a hot line to take complaints about problems in buying or selling stocks, he said. "Each day that we have a quiet day renews the confidence in the market," he said.

A key role in the stock rally yesterday was played by the so-called takeover stocks, which jumped after earlier reports that Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, would consider changes in tax proposals that would discourage merger and acquisition activity. The original proposals would have limited interest expense deductions on loans related to mergers and acquisitions.

Among the stocks that leaped were Brockway Inc., up 13 at 43 1/2; Piedmont Aviation, up 6 1/4 at 61 3/4; Telex Corp., up 4 3/8 at 47 7/8; Rexham Corp., up 6 1/2 at 56, and Santa Fe Southern Pacific, up 4 1/2 at 50 1/2.

Michael Lipper, who tracks the behavior of mutual funds, said during a luncheon speech in Washington yesterday that the tax proposals were one of the causes of the sudden wave of selling on Black Monday.

"There was an abrupt change in the valuation system of market participants," Lipper said. As a result, he added, arbitrageurs who held takeover stocks promptly dumped them.

Lipper said computer-trading techniques known as program trading and portfolio insurance were not a primary reason for the market's plunge. "I don't think they were a cause. But they were a contributor," he said.

Institutional investors involved in program trading use the computerized strategies in connection with futures contracts on stock indexes, often the Standard & Poor's 500 stock index.

Lipper said the effect over a long period was to "concentrate investments in the S&P 500 stocks, rather than spreading them over the whole market."

Lipper called mutual funds that use futures, options and other hedging devices unattractive, saying, "They're going to change the rules. They are going to have to," he said.

In market action, the NYSE composite index rose 5.97 to 136.28, while the American Stock Exchange value index increased 8.29 to 242.30.

The Nasdaq composite index for the over-the-counter market closed at 307.05, up 15.17.

Standard & Poor's index of 400 industrials rose 14.30 to 279.79, and S&P's 500 stock composite index was up 11.49 to 244.77.

The Wilshire Associates' index of 5,000 stocks showed that the market gained $106.5 billion yesterday. The market lost $500 billion on Oct. 19.

On the trading floor, Bristol Meyer rose 3 3/8 to 43 1/2; Gillette 2 5/8 to 29 1/4; International Business Machines 2 1/4 to 120 1/4; Unisys 2 3/8 to 31 3/8; and General Electric 1 3/4 to 45 5/8.

Merck, one of the Dow stocks, jumped 16 to 179, boosting the average.