August 10, 1994

Prodded by the United States Supreme Court, officials of New York State and the Seneca Indian Nation are discussing a novel solution to a costly bootlegging problem involving sales of tax-free cigarettes and gasoline at reservation stores. The deal would establish the tribe as the only wholesaler allowed to supply a lucrative chain of reservation stores. In return, tribal officials would help the state for the first time by using their sovereignty to close down wildcat Indian dealers involved in bootlegging.

In a sign that the current business expansion is reaching a mature phase, the Labor Department reported yesterday that the productivity of American workers fell at an annual rate of 1.2 percent during the second quarter -- the first decline in more than a year. And, in a report economists said could lead the Government to revise downward its estimate of second-quarter growth in coming months, the Commerce Department said stockpiles of unsold wholesale goods fell four-tenths of 1 percent during June.

Bosnian Army Gains Ground The outgunned Bosnian Government Army is advancing on several critical fronts, including a northwestern area where a Serbian-backed businessman declared his own state. Page A8. Race Perplexes Mexico Polls give Mexico's governing party candidate a solid lead in the Aug. 21 presidential race, but many people are skeptical, apparently reflecting a lack of faith in the system. Page A3. All the President's Lawyers The favorite to succeed Lloyd Cutler as White House counsel is Abner Mikva, Chief Judge of the Court of Appeals for the District of Columbia, officials said. Page A14. Fatal Cuban Boat Hijacking Cuba demanded the return of 27 people who landed in Florida after a boat hijacking in which a Cuban Navy lieutenant was killed. Page A12.

KPMG Peat Marwick, one of the Big Six accounting firms, said yesterday that it had agreed to pay $186.5 million to settle Federal charges that it failed to audit a number of failed and distressed banks and savings institutions properly. The settlement, one of several won by Government agencies seeking restitution from professional firms in the wake of the scandals that decimated the savings and loan industry in the 1980's, resolves all pending and future Federal litigation against KPMG in the matter.

THE dark, steamy flood of espresso that gushed into snowbound New York City last winter has been followed, in this most tropical of summers, by a torrent of iced tea. Corner groceries now carry bottled and canned iced teas in every shape, color and flavor. To front-porch purists who believe iced tea needs no more than lemon and sugar, some of the zany new combinations seem farcical at best. Strawberry iced tea? Cranberry iced tea?