January 8, 1981

On a snowy Christmas Eve, faith blooms in Moscow A2 Iraqis say they have halted Iranian drive, trapping hundreds A3 Soviet warns again on subversive threat from Islamic nations A4 U.S. won't prosecute Ramsey Clark for Iran trip A6 Around the World A7 400 American clerics criticize Israel on Palestinian rights issue A8 U.N. endorses a report that fear would endanger a free press A11 U.S. journalist missing in El Salvador called ''determined'' A14 Government/Politics Grand jury to pay $25,000 for libeling concern A16 New York Assistant State Attorney General called suicide B2 The new State Legislature reacts in the old partisan style B4 Koch says he's pleased, generally, with Carey's annual message B4 Carey calls for major overhaul of criminal-justice system B5 The text of Gov. Carey's State of the State message B6 Program increases conviction rate for ''career criminals'' B7 Loft plan denounced by manufacturing and residential interests B9 Abscam witness says he was told Lederer took $5,000 of $50,000 B13 Inaugural entertainment to have Hollywood tone B17 General Around the Nation A16 Snow delays trains and shuts some schools in New York area B2 City needs 60 days of heavy rain to bring reservoirs to capacity B7 PARKING REGULATIONS Because of the snow, alternate-side parking regulations are suspended throughout New York City today. The Home Section Home Architects play with spatial illusions C1 An energy audit of a typical row house C1 At Your Service: Home filing cabinets C8 Use of energy codes lags in many areas C13 A new status symbol: a thatched cottage C16 Clinics and classes for overweight children C1 Hers C2 Helpful Hardware C2 Home Beat C3 Preventing damage from deicing salt C3 Home Improvement C4 Latest how-to help is on video- tapes C9 Design Notebook C10 Begin the new year by culling plants C11 Choosing shapes and textures for winter terraces C12 Two products must halt claims of doctors' endorsements C15 Energy E.P.A. extends deadline on limiting auto emissions D24 Arts/Entertainment City Ballet returns to its regular repertory C17 A literary critic asks: Is marriage a bad novel? C20 Dance Theater of Harlem offers ''Allegro Brillante'' C20 ''Melvin and Howard,'' a film praised but unseen C21 Graham Greene's second volume of memoirs is reviewed C22 Town Meeting on the Arts planned in Washington C22 WNYC altering its stations' shows and financing C24 Obituaries Wesley Powell, former Governor of New Hampshire D23 Clair Loring Farrand, inventor of radio loudspeaker D23 Religion Catholic Bishops urged integration, not assimilation in U.S. D23 Health/Science NASA gets a $60,000 donation for Mars mission A20 Sports Earl Campbell seeking 6-year pact at $1 million a year B18 Esposito retires as player today; to be Ranger coaching aide B19 Mrs. Lloyd, Misses Navratilova and Mandlikova win in tennis B19 Islanders lose to Penguins, 7-3 B19 Dave Anderson on Bum Phillips on the bum's rush B19 Hausman and Jorgenson are signed by the Mets B21 St. John beats Georgetown, 68-60 B22 Features/Notes Notes on People B10 Man in the News: T.H. Bell, Education Secretary-designate B17 News Analysis Drew Middleton weighs Iran's claims of a ''counteroffensive'' A3 Richard J. Meislin on Carey's State of the State address B6 Lawrence K. Altman on Alexander M. Haig's health B16 Editorials/Letters/Op-Ed Editorials A22 State of the State End of the Education Dept. Selling the Seaport Letters A22 William Safire: when Mr. French Smith goes to Washington A23 Anthony Lewis: questions for General Haig A23 James S. Altschul: in favor of negotiating with North Korea A23 Alvin B. Lebar: when strange things happen A23

Governor Carey opened the 204th session of the Legislature today by calling for a broad program of tax cuts for individuals and business, increases in welfare grants, more aid for mass transportation, a state takeover of Medicaid costs and a series of tough new measures to combat street crime. Mr. Carey's seventh State of the State Message represented the most ambitious inventory of proposals of his tenure and drew freely on the ideas of both liberals and conservatives. The Governor proposed that his potentially expensive program be put into effect over a number of years and his aides believe that will give him room for the financial and political maneuvering he needs to see it through. Mr. Carey, speaking in a staccato style as he condensed and improvised from a longer printed message, made his televised address before a joint session of the Legislature. Action on Crime Urged The Governor also recommended a major overhaul in the criminal justice system that would include stricter sentencing for violent criminals, increased police protection, three new correction facilities and expansion of investigatory and prosecution resources. (Page B5.)

''In each of the areas I have outlined today there is the same single underlying need to accept the disciplines of austerity as a means of hope.'' - Governor Carey in his State of the State message. (B4:2.)

Despite an impressive recovery from near bankruptcy in 1975 and subsequent investigations of widespread graft, Pertamina, Indonesia's national oil company, again faces the possibility of corruption within its ranks. More than $15 million in fuel cargoes have been stolen in the last year from ships traveling between Singapore refineries and Indonesia. An investigation has resulted in the arrest of more than 50 foreigners and Indonesians so far, including the Greek captain and the Polish first mate of the Panamanian-registered ship Houssan B. ''We think there are more,'' a Pertamina spokesman said. ''The investigations will continue until we are sure.''

-------------------------------------------------------------------- Arlene Fischer is a freelance writer. By ARLENE FISCHER ''WHEN you're fat you feel different from the other kids, like there's something wrong with you,'' said 10-year-old Julie, who six months ago weighed 93 pounds, about 15 pounds over her ideal weight. ''You're out of breath a lot, you're jealous of the skinny kids, sometimes you lie about eating and you end up being really mad at yourself and everybody else.'' An overweight child may carry a much greater burden than extra pounds, and the parents may also find the situation stressful. ''My daughter couldn't stop eating,'' said the mother of a 12-year-old girl, Susan, who was 5-foot-1 but weighed 127 pounds. ''At school she traded her diet lunches for pizza and potato chips. I hoped Susan would slim down on her own, but she was out of control. She put on 20 pounds in six months.''

Paul A. Volcker, chairman of the Federal Reserve Board, said today that the board's tight hold on growth of money and credit was likely to cut off any strong economic recovery as long as inflation remained high. At the same time, Mr. Volcker called for help in the fight against inflation from the Federal Government's budget policy, which he said had tended to ''strongly aggravate interest rate pressures.'' In sum, Mr. Volcker's testimony before the Senate Banking Committee appeared to be both a warning and a policy prescription for the incoming Reagan administration. In one sense, Mr. Volcker's remarks constituted his defense of monetary policy a day after Donald T. Regan, designated to be Secretary of the Treasury, cited ''erratic monetary policies'' as one cause of volatile financial markets.

THE first word that comes to mind when his work is seen happens to be the one word that he dislikes. But, in fact, the work of Charles Boxenbaum is clever. The New York architect's special attitude toward design is exemplified in two recently completed projects: the new Woods restaurant at 148 West 37th Street and an apartment/office for a psychologist on the Upper West Side. In both, Mr. Boxenbaum emphasized the ways in which space can be manipulated to serve different functions. Mr. Boxenbaum is known for his work in residential design, including a house and an apartment interior for Zeus Goldberg, the owner of the Woods restaurant on the Upper East Side. So when Mr. Goldberg asked the architect to plan his second restaurant, Mr. Boxenbaum teamed up with James D'Auria, a New York architect who has had experience with commercial projects.

In his first State of the State address, Gov. William A. O'Neill said today that he favored cutting spending rather than increasing taxes to eliminate a deficit in this year's budget. But he said that balancing spending with existing revenues would be even harder for the fiscal year beginning July 1. Speaking before a joint session of the State House of Representatives and Senate, Mr. O'Neill said: ''Government at all levels faces increasingly tough decisions, finding itself forced to do more with less. It seems we have only one choice: Curb spending and control taxation.''

Stock prices plunged and trading was the heaviest on record as investors responded to a warning by a prominent stock forecaster, Joseph Granville, to ''sell everything.'' He gave no explanation for the sharp turnabout from his advice of Jan. 3 ''to buy aggressively.'' The Dow Jones industrial average fell 23.80 points, to 980.89, as volume swelled to 92.9 million shares. The biggest casualties were the recently strong blue-chips and technology issues. Seven times as many stocks fell as advanced. (Page A1.) Interest rates rose sharply amid signs that the Federal Reserve did not want rates to fall too far or too fast. Forecasters, however, said they still expected rates to decline during the first half of the year, but perhaps not as sharply as they did last spring. (D5.)

An analysis of deaths among 1,900 middle-aged American men whose diets and cholesterol levels were first examined more than 20 years ago has shown that consumption of large amounts of cholesterol increased their risk of dying prematurely of a heart attack. The study, one of the largest and longest of its kind, also showed that a higher intake of polyunsaturated fats, which tends to lower cholesterol levels in the blood, helped to protect against early death from coronary heart disease without increasing the risk of dying from cancer or other causes. Though saturated fat intake was not itself directly related to coronary risk, it did raise blood cholesterol levels, which in turn increased the risk of death from heart disease, the study showed. Differs From Earlier Advice According to Dr. Oglesby Paul, a heart disease specialist at Harvard Medical School who was the study's first director, the new findings are ''at variance'' with the advice issued last spring by the Food and Nutrition Board of the National Academy of Sciences, which concluded that otherwise healthy Americans need not reduce their intake of cholesterol and saturated fats.

New York City yesterday began to implement measures to reduce leaks that waste an estimated 100 million gallons of water daily. The measures, which anticipate the probable declaration of a drought emergency within the next two or three weeks, included the introduction of an electronic leak detector that officials say can pinpoint leaks in underground water mains to within an eighth of an inch. The Department of Environmental Protection began to advertise contracts yesterday to shut off the water in 6,000 vacant buildings, the source of considerable leakage because vandals steal faucets and pipes and leave water flowing. The department also recently awarded $6 million in contracts to repair fire hydrants.

Last year the domestic automobile industry had its worst sales year since 1961. The five United States manufacturers today reported sales of 6.58 million cars for 1980, down 20 percent from 1979. The 1961 figure was 5.56 million. Last year's sales ended with a decline of 20.3 percent in the final 10 days of December. Sales of imports in 1980, however, brought last year's total car sales in this country to 8.95 million. This was the lowest since 1975, when sales totaled 8.6 million. Last year's total was down 15.2 percent from the 1979 level.