International Telephone and Telegraph Corp. today reported a 65 percent increase in earnings during the first quarter, but cautioned that most of the increase was due to foreign currency earnings because of a stronger U.S. dollar.

ITT cHairman and President Rand V. Araskog told shareholders at the company's annual meeting here today that because the dollar has been declining for the last month, it "is now negatively affecting second-quarter results."

Under shareholder questioning, Araskog also revealed that ITT will pay ousted president Lyman C. Hamilton $470,000 a year until May 31, 1983. Hamilton, in a surprise move, was fired last summer, apparently in a dispute with then-chairman Harold S. Geneen.

Hamilton replaced Geneed as president on Jan. 1, 1978. Geneen, who is 70, remains a director and carries the title chairman emeritus. He retired as chairman at the end of 1979, but still retains much power.

But today Geneen lost a little of that power, when he left the board's nominating committee, the group of directors that determines who will be named to the board next year. Geneen remains on ITT's powerful executive committee, however.

ITT reported today that it earned $346.5 million ($2.38 a share) on revenues of $5.5 billion in the first quarter. A year ago, the company had profits of $210 million ($1.46) on sales of $4.9 billion.

But the company said that foreign exchange transactions added 97 cents a share to the company's earnings this year compared with 12 cents a share during the first three months of 1979. After adjusting for foreign exchange transactions, ITT earned $1.41 a share during the first quarter and $1.34 a share a year earlier.

Araskog told shareholders that current accounting rules on foreign exchange reporting "on a quarter-to-quarter basis tend to distort ITT's competitive performance. We hope these rules will change."

The chairman told shareholders that all five of the company's basic business groups had increased sales and income in the first quarter.

"In addition, order backlog remains strong at $7.4 billion. Despite uncertainties in the economy we remain confident that the company will have a good year, achieving record earnings in 1980 with increased sales and a strengthened balance sheet," he said.

Meanwhile, ITT's Domestic Transmission Systems subsidiary introduced Intertext, a new domestic telex service that ITT calls the first alternative to Western Union's nationwide business message transmission service.

Intertext initially will be available in Boston, Chicago, Detroit, Houston and Los Angeles, but the network will be extended by the end of the year to 26 major metropolitan areas serving more than 90 percent of the nation's business community, ITT said.

The company noted at press conferences held yesterday in Washington and Detroit that Intertext permits transmission between different types of machines, such as teletypewriters and facsimile devices.

ITT is a large, worldwide conglomerate that is in the telecommunications business, electronics, automobile parts, energy and forest products, among other things. The company also owns the Hartford Insurance Group, the Sheraton Hotel chain and Continental Banking, which makes, among other things, Twinkies and Wonder Bread.

Araskog also said under shareholder questioning that the board of directors agreed to offset the interest he has to pay on a $950,000 loan the company made to allow him to buy a cooperative apartment. The board requires him to live close to ITT headquarters on Park Avenue in Manhattan.

He said the board was willing to rent a corporate apartment for him but that he preferred to buy his own and that the directors felt it fair to offset the interest he has to pay.

The firing of Hamilton was criticized by only one shareholder, longtime stockholder activist Lewis D. Gilbert.

"He was an asset," said Gilbert. "He was making sure the cash cows were made stronger and the cash hogs eliminated. There is no justification for his departure."

Gilbert, 72, will go into semiretirement after 40 years of attending annual meetings and publishing his own account of those meetings each year. He was presented with a special citation by ITT for his "pioneering efforts as a shareholder activist" that led to increased disclosure on the part of companies and improvements in corpporate governance.