NEW YORK — Wall Street rallied yesterday as oil prices tumbled, the service sector reported strong growth, and investors embraced large-cap stocks such as Wal-Mart Stores Inc., Coca-Cola Co. and Home Depot Inc.

Investors rejoiced as crude oil and gas futures dipped after industrialized nations decided to release 60 million barrels of crude from strategic stockpiles in the wake of Hurricane Katrina. A barrel of light crude settled at $65.85, down $1.61, on the New York Mercantile Exchange; gasoline prices on the exchange fell 13 cents to $2.05 per gallon.

"Today was a relief rally; it was an oil price relief story," said Lynn Reaser, chief economist of the investment strategies group at Bank of America.

Stocks started the session substantially higher after the Institute for Supply Management, which surveys 370 U.S. businesses, said its nonmanufacturing index rose to 65 percent in August from 60.5 percent in July. Any reading above 50 indicates that the sector is expanding; the August reading was the best since April 2004.

Hopes that interest rates would stop climbing also buoyed the markets. Last week's softer-than-expected economic data reinforced some traders' belief that the Federal Reserve would stop its campaign of short-term interest rate hikes earlier than it had planned, said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco.

Advancing issues led decliners by more than 2 to 1 yesterday on the Big Board, where preliminary consolidated volume was 1.93 billion shares, an increase from the 1.64 billion shares traded on Friday.

Bonds fell. The U.S. dollar was mixed against other major currencies. Gold prices were lower.