Norfolk Southern Corp. yesterday disputed the U.S. Railway Association's findings that Conrail could survive as an independent company and expressed hopes that Norfolk Southern could win approval of its bid for Conrail by the end of this year.

The Norfolk-based company stands by its projections that Conrail's declining traffic base will drag it into a "negative cash position" by the early 1990s. Norfolk Southern argues that a merger of the two railroads would stimulate traffic growth and ensure Conrail's survival through an economic downturn.

The USRA, created by Congress to oversee the government-owned Consolidated Rail Corp., said in a report released Tuesday that "Conrail's future viability as an independent entity is reasonably assured."

USRA also said "all available evidence" shows that Conrail "can generate positive cash flow for the foreseeable future."

USRA prepared the report for use by lawmakers who must decide whether to approve Norfolk Southern's $1.2 billion bid to buy the government's 85 percent share of Conrail. Norfolk Southern would pay another $375 million for the 15 percent owned by Conrail's employes.

The USRA findings suggested that a plan by Morgan Stanley & Co. to turn Conrail into an independent company could be a viable alternative. The investment banking firm has assembled a group of investors who propose to purchase the government's Conrail stock for $1.2 billion, and then resell it through a public offering.

Norfolk Southern said yesterday that Congress cannot rely on USRA's forecasts. "USRA has a dismal track record at making anything even approaching accurate forecasts about Conrail's performance," said Edward T. Breathitt, a Norfolk Southern vice president.

USRA once forecast that Conrail would need only $1.85 billion in government subsidies, but Conrail has swallowed more than $7.5 billion in government aid, Breathitt said at a news conference.

Norfolk Southern said its forecasts are more realistic than USRA's because Norfolk Southern's forecast assumes that more rail traffic in the Northeast will be lost to trucks and that the economy will experience a recession within the next decade.

The Department of Transportation has urged Congress to approve the sale of Conrail to Norfolk Southern, arguing that Conrail might not be able to survive rough times on its own. Conrail was created in 1976 out of the ruins of several collapsed Northeastern railroads, and DOT does not want to rescue it again.

Conrail Chairman Stanley Crane told a House subcommittee Wednesday that Conrail "proved in 1982, in the depth of the worst recession in 50 years, our ability to survive a severe cyclical downturn."

Conrail's continuing profitability, reflected in earnings of $210 million in the first half of 1985, has prompted a call for higher bids. Rep. James Florio (D-N.J.), chairman of the House subcommittee reviewing the Conrail sale, said in a hearing Wednesday that $1.2 billion is "inadequate."

Breathitt, of Norfolk Southern, said the price "was set by the marketplace" and will not be upped.