August 3, 1988

LEAD: Using the threat of bankrupting New York's fourth-largest city over its opposition to a court-ordered desegregation plan, a Federal judge found the City of Yonkers and three Councilmen in contempt yesterday. He ordered them to begin paying fines and repeated his threat to jail the officials.

LEAD: The Economy

LEAD: A military investigation of the shooting down of an Iranian airliner by an American warship last month has blamed crew error arising from the psychological stress of being in combat for the first time, Defense Department officials familiar with the inquiry said today.

LEAD: With Republicans increasingly alarmed about their political prospects this fall, President Reagan today bowed to the appeals of Vice President Bush and his party's Congressional leaders and said he would not veto a bill requiring companies to provide 60 days' notice of major layoffs or factory closings.

LEAD: King Hussein's announcement that he is severing Jordan's ties with the Israeli-occupied West Bank has presented the Palestine Liberation Organization and its often enigmatic leader, Yasir Arafat, with opportunities and quandaries.

LEAD: THE vegetarian tourist en route to Paris need not fear that the only nourishment available will be either the steak-frites-Cotes-du-Rhone formula of the typical bistro, or grande-cuisine designed for wealthy carnivores. There are about 35 so-called vegetarian restaurants in Paris.

LEAD: Texaco Inc. formally put its 78 percent share of Texaco Canada on the market yesterday. Selling it could bring in as much as $3 billion, which could put Texaco well beyond its goal of $5 billion of asset sales in its post-bankruptcy restructuring.

LEAD: For John Labatt Ltd., becoming one of the leading dairy companies in the Northeast in just three years was easy - at least when compared with the challenge of making money in the newly deregulated New York City milk business.

LEAD: The Iraqi delegation to the Persian Gulf talks said today that Baghdad would not accept the cease-fire declared by Secretary General Javier Perez de Cuellar, repeating Baghdad's demand for direct talks with Iran before the fighting can stop.

LEAD: IT may be hard for born-and-bred Midwesterners to believe, but their region is being touted as the next mecca for food.

LEAD: South Africa today proposed a cease-fire in Angola starting Aug. 10 that would lead to a withdrawal of Pretoria's troops from Angola and Namibia, and to elections in Namibia supervised by the United Nations next June.

LEAD: New York City officials, in a last-ditch effort to head off a bill that would ban sewage sludge dumping at sea within four years, today offered to end the practice by 1998.