After mounting a sharp attack on the Chrysler Corp. rescue plan approved by the government's Loan Guarantee Board, Sen. William Proxmire (D.-Wisc.) indicated yesterday he will abandon efforts to block federal guarantees for $1.5 billion worth of loans to the ailing automaker.

"We have provided the authorization and undoubtedly will go ahead and provide the funding now," Proxmire, chairman of the Senate Banking Committee, said near the end of a day-long hearing on the matter.

Proxmire, who voted against the bailout when it was before the Senate, opened the hearing with a charge that "the plan is put together with mirrors and magnifying glasses, and the whole adds up to far less than the sum of its parts."

Based on the report to Congress by the Loan Guarantee Board, he added, "I am inclined to think that Congress should ask the board to come back with a plan that more closely meets the letter and intent of the law."

But Proxmire was unable to muster much support for a resolution disapproving the Chrysler plan despite pointed criticism of it from at least two Republican members of the committee, Sen. Jake Garn of Utah and Sen. John Heinz of Pennsylvania.

Deputy Treasury Secretary Robert Carswell pointed warned Proxmire any further delay would mean a Chrysler bankruptcy. "If this plan does not go through," he declared, "Chrysler will have no opportunity to come back."

Federal Reserve Chairman Paul Volcker, one of three members of the Loan Guarantee Board, said it had not determined whether Chrysler was "creditworthy" but rather under terms of the legislation in which Congress okayed the loan guarantees if certain conditions were met, only concluded there "is a reasonable prospect of repayment."

"That's a much looser test," Volcker said.

It was with the way in which the board met the conditions specified in the bill that Proxmire took issue.

As a condition of getting the loan guarantee, Chrysler had to come up with at least $1.43 billion in other assistance such as new loans from banks, converting present loans to equity financing, reduced labor costs, and so forth. Some of the categories spelled out in the legislation -- new bank loans and issuance of at least $100 million in new equity or other capital -- "were waived altogether," proxmire complained.

Carswell, who was testifying on behalf of Treasury Secretary G. William Miller, another member of the board, defended the plan, saying in effect that the board had done the best it could. The banks, he said, simply refused to make any new loans to Chrysler.

"You didn't take advantage of your bargaining position," Proxmire told Carswell. The government's position was "very strong," he said, because without the $1.5 billion loan guarantee the company would fold and the banks in question would lose hundreds of millions of dollars in money they lent to Chrysler earlier.

"We tried as hard as we could to get additional funds out of the banks," Carswell said, noting that the banks did agree to make new loans after the three-year period covered by the plan if the corporation is back on its feet.

Later, Proxmire asked if the banks' refusal to make new loans didn't indicate they thought Chrysler could not be saved?

"Bankers are not in the business of making risky loans . . .," Carswell replied.

"That's my point," the chairman insisted.

"This is a risky loan, not a loan not possible of repayment," Carswell said.

The deputy secretary urged Congress to act on a pending appropriations bill specifically making money available in case of a default on the guaranteed loans. That would reduce the interest rate Chrysler will have to pay by about 1 1/2 percentage points, he said.

The first $500 million in loan guarantees probably will be made available to the company during the first week of June, Carswell estimated.