Citing foreign currency exchange losses, European operations losses and "continuing extensive negative publicity about the discountinued Steel Belted Radial 500 tire," the Firestone Tire & Rubber Co. yesterday reported a sharp drop in third quarter earnings.

Firestone reported a net income of $15.9 million ($.27 a share) on sales of $1.2 billion in the third quarter ending July 31, 1978. During the same quarter last year the company earned $22.3 million ($39 a share) on sales of $1.1 billion.

For the first nine months of the fiscal year, Firestone posted a loss of $21.1 million, "reflecting the previously reported pre-tax write-off of $110 million ($73 million after-tax) related to phasing out tire production at some domestic and foreign plants.

Excluding the write-off, the company reported net income in the first nine months of $51.9, $90 per share) compared with $84.9 ($1.48 per share) for the same period in 1977.

According to Firestone chairman Richard A. Riley and president Mario Di Federico."The potential recall of Steel Belted Radial 500 tires could have a very substantial adverse effect of future earnings, but no specific estimate can be made at this time."

Industry analysts have said in recent weeks that a government ordered recall of the 13 million Firestone 500 steel belted radials would damage the tiremaker financially, but not destroy it.

Estimates of the cost to Firestone of such a recall range from $100 to $200 million.

Meanwhile a Washington area industry newsletter, Washington Motor Vehicle Rports, reported yesterday that Rep. John Moss (D-Calif.) sent a letter to Di Federico accusing him of making a 1974 decision to distribute and sell to consumers "highly failure prone" tires - after being advised of the possible safety problems.

Moss alleges that Di Federico, who at the time was Executive Vice President for North American tire production and sales, decided the company should ship the tires and make on line corrections later.

The Moss subcommittee on oversight and investigations is expected to produce a report on its Firestone investigation sometime next week.

The National Highway Traffic Safety Administration, last month made an "inital determination" that there was a safety-related defect in the 500, and asked Firestone to recall the tire.

Firestone refused, and testified before NHTSA earlier this month in defense of the tire, which it called "safe and reliable."

Meanwhile, however, Firestone family members hired Washington attorney Clark Clifford to negotiate a possible settlement with NHTSA over a possible recall.