The administration will continue import quotas on specialty steel products, but President Carter's top trade adviser, Robert S. Strauss, warned specialty steel makers yesterday against using the quotas as a cover to boost prices.

At the same time, Strauss said the government has dropped an investigation into whether Japan diverted a substantial amount of steel to the United States market after reaching a secret agreement with the European Community to limit exports to the continent.

The American Iron and Steel Institute, the trade association for steel producers, filed an unfair trade practices complaint against japan and the European Community in October 1976.

Strauss said in a statement that it is "clear that a bi-lateral understanding had been reached between Japan and the European Community on steel" but that there is not enough evidence to substantiate a charge that there was a significant diversion of Japanese steel into the U.S. market.

Nevertheless, Strauss warned Japan and Europe that the United States disapproves of such "bilateral understandings." American iron and steel makers charged that the understanding was reached secretly in late 1975 or early 1976 and was designed to protect European steel makers from Japanese competition. The steel institute had no comment yesterday on the government's dropping of the investigation.

Strauss, in dropping the investigation, noted that the special import program the administration will put into effect next month - which effectively sets minimum prices for steel imports - should provide adequate relief for the steel industry.

The administration has contended that the amount of relief the steel industry can expect to get from the minimum price program depends in large extent on how much they hold down the prices.

Strauss echoed that sentiment yesterday in announcing continuance of the quotas on specialty steels such as stainless.

The Special Trade Representative said the "administration is concerned about inflationary price increases in the domestic specialty steel industry."