We study the effect of Coulomb correlations on the ultrafast optical d
ynamics of small metal particles. We demonstrate that a surface-induce
d dynamical screening of the electron-electron interactions leads to q
uasiparticle scattering with collective surface excitations. In noble-
metal nanoparticles, it results in an interband resonant scattering of
d holes with surface plasmons. We show that this size-dependent many-
body effect manifests itself in the differential absorption dynamics f
or frequencies close to the surface plasmon resonance. In particular,
our self-consistent calculations reveal a strong frequency dependence
of the relaxation, in agreement with recent femtosecond pump-probe exp
eriments. [S0031-9007(98)07279-2].