The stock market was jolted higher Friday as oil prices tumbled in the wake of President Bush's offer to seek a diplomatic solution to the Persian Gulf crisis.

The Dow Jones average of 30 industrials jumped 40.84 to close at 2,559.65, bringing its gain for the week to 32.42 points.Advancing issues overwhelmed declining ones by about 8 to 3 in nationwide trading of New York Stock Exchange-listed stocks, with 1,126 up, 426 down and 462 unchanged.

Volume on the floor of the Big Board came to 192.35 million shares, up from 140.92 million in the previous session.

Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 233.50 million shares.

After idling for most of the week, the stock market climbed decisively higher following Bush's comments at a late morning news conference that he would open talks with Iraq in an effort to "go the extra mile" before committing troops to battle.

Oil prices plunged more than $4 a barrel, and "that made all this happen," said Peter Vandenberg, a trader with Lehman Brothers, referring to the runup in stock prices. Sharply higher bond prices also supported the market.

Institutional investors lured from the sidelines snapped up equities, and computer-driven buy programs kicked in. At one point the Dow was up more than 50 points, triggering an automatic restraint on computer trading.

"The market has defied those who were so bearish," said Eugene Peroni, an analyst with Janney Montgomery Scott in Philadelphia. The advance encouraged "many money managers who had been too light in their stock holdings show participation" in the event this is the start of an end-of-the-year rally.

Analysts also pointed to the significant increase in trading volume as a sign that confidence in the market was being restored.

Separately, Bush conceded the economy is headed for recession, and a government report showing the index of leading indicators fell 1.2 percent in October - its fourth consecutive monthly decline - underscored his assessment.

But Peroni noted that the economic scenario may mean that lower interest rates are on the horizon as the Federal Reserve shifts its focus from combating inflation to preventing the recession from deepening.

Lower interest rates, which would stimulate a battered economy, "are a very good factor for the market to feast on," Peroni said.

Among actively traded Big Board issues, Motorola tumbled 3 3/8 at 50 1/2.

Oil stocks rose, and the airline sector got a strong boost from lower crude prices. AMR was up 3 at 47 1/4; Delta was up 2 3/4 at 56 3/4 and UAL was up 3 5/8 at 97 1/2. Pharmaceutical issues also advanced, with Abbott Labs up 1 3/8 at 43 5/8; Pfizer up 3 at 80 3/4 and Eli Lilly up 3/4 at 73 3/4.