The index of leading indicators dropped 0.9 percent in October, the Commerce Department reported yesterday, prompting at least one economist there to declare, "the recession is at hand."

The index, which often foreshadows changes in economic activity, fell by the largest amount since last April and reached the lowest point of the year.

Meanwhile, most ot the nation's larger banks, led by Citibank, the second largest, cut their prime lending rates from 15 3/4 percent to 15 1/2 percent yesterday.

Financial analysts had been watching to see whether Citibank would follow the lead of Chase Manhattan Bank, which cut its prime by one-half a percentage point, to 15 1/4 percent, earlier this week.

"Interest rates have likely peaked," said one, Allen Sinai of Data Resources, Inc., "but immediate sharp downturns should not be expected given continuing high rates of U.S. inflation, weakness in the dollar, rising interest rates abroad, and the potential failout on oil and energy price from the Iranian situation."

Seven of the 10 indicators available for October contributed to the decline in the index, Commerce said. The largest factor was a sharp drop in building permits, a direct consequence of recent moves by the Federal Reserve to tighten credit availability -- the same moves that drove the prime rate to its historic high of 15 percent.

"The index is heading south in earnest and signaling the emerging weakness in the economy," declared Theodore Torda, a senior economist at Commerce. "The recession is at hand."

The October drop "is not particularly large or alarming itself," Torda explained. However, he added, "Looking at the trend of the index over the past year, it is signaling decline in economic activity in coming months, but on the basis of the latest data, a number believe the economy is still flat at the moment, not yet heading downward.

The other indicators that fell in October, in order of their importance to the overall index, were stock prices, contracts and orders for business plants and equipment adjusted for inflation, the money supply adjusted for inflation, the change in total liquid assets, vendor performance (the number of companies reporting slower deliveries), and new orders received by manufacturers for consumer goods and materials, adjusted for inflation.

Of the other three indicators available, one, the length of the average workweek for production workers in manufacturing was unchanged. The other two, the layoff rate in manufacturing and the change in so-called sensitive prices of certain materials, had a positive effect on the index.

At 138.8 in October, the index stood at its lowest level since September 1977. The index fell 0.2 percent in the first quarter of this year, 1.9 percent in the second and only 0.1 percent in the third.

Citibank's published formula, which it uses in settling its prime fell between 15 1/4 percent and 15 1/2 percent, and the bank chose to come down on one-quarter point. Its choice helped depress money markets somewhat yesterday, with short-term rates moving slightly higher.