American Telephone & Telegraph Co. yesterday raised more than $700 million in the largest stock offering on record, as enthusiastic institutional and individual investors over-subscribed the company's offering of 12 million common shares.

The new stock was sold at $59.845 a share, the closing price of Ma Bell on the New York Exchange. Previously, there were about 627 million shares of AT&T common outstanding.

Heavy interest in the AT&T stock helped push up the price of the utility's shares in recent days. When announced last month, AT&T was trading at $60 a share and the price subsequently declined. But since Monday, AT&T picked up 75 cents a share.

On the Big Board yesterday, AT&T was up 25 cents on a volume of 139, 100 shares - the 15th most active issue.

Washington brokers said the issue was sold out even before the price was established by yesterday's trading. A nationwide syndicate of brokers headed by Morgan Stanley & Co., Merril Lynch, Pierce, Fenner & Smith and Salmon Brothers is selling the stock to the public.

AT&T will use the $718.5 million raised yesterday for redemption of half of the nearly $1.6 billion of outstanding 8.75 per cent debentures scheduled to mature in 2000.

The most widely held public U.S. corpration, AT&T will seek to redeem the debentures next month, in an effort to trim interest costs and to increase the ratio of equity investment in the telephone giant.

AT&T also was involved in the previous record stock offering - $658.5 million on June 16, 1976, when 12 million shares were sold at $54.875 apiece.

In another development yesterday, the California Public Utilities Commission denied a petition By Pacific Telephone & Telegraph Co., to hold hearings on that agency's order requiring a refund of rates and a reduction in monthly telephone charges.

A spokesman of Pacific Telephone owned 90 per cent by AT&T, said an appeal will be filed with the California Supreme Court. In the meantime, the agency's order has been stayed.

Pacific Telephone was ordered to refund $205.5 million to its customers and to reduce annual rates by $60.4 million, in a disputes over accounting.