Although the end may be in sight for one of the most-far-reaching product liability cases in recent decades, the focus of the dispute, Manville Corp., may not emerge from the morass for years to come.

The company could remain embroiled in bankruptcy court for another two years despite a tentative settlement announced nine days ago that appears to break the three-year stalemate between the company and thousands of asbestos-disease victims. In short, that settlement would absorb huge chunks of the company's profits and even stock to establish a $2.5 billion fund for damage claims.

Manville also faces the prospect of even more litigation on a number of other fronts, including legal battles with 21 of its insurers and with schools and other institutions that have filed property-damage claims against the company.

On top of this, the building-materials and forest-products giant must cope with the formidable task of remaining a profitable and competitive player at the same time it deals with the unique situation of essentially being the property of the asbestos victims.

Asbestos fiber, once widely used in building insulation, has been linked to cancer and other diseases, which often take 20 to 40 years to develop. More than 300 companies have had claims filed against them for personal injury, but Manville, as the biggest manufacturer of asbestos fiber, has been named in the vast majority of lawsuits.

Manville officials say they can handle the dual responsibilities of turning out profits and making payments to the trust fund.

"We had to have a healthy company that could produce value over a long period of time," said W. T. Stephens, the company's executive vice president, finance and administration. "It's tight. There is not a lot of room there. But it is doable," he said of the road ahead.

Others are more skeptical. They wonder about the shift in management attitude caused by a company being run for the benefit of claimants rather than for the benefit of shareholders. One possibility, according to Stephen Albert, an analyst who follows the Denver-based firm for Kidder Peabody, is a Manville "progressively less able to compete."

That, observers say, would be to the disadvantage of almost every party involved in the bitter and complex legal battle that has raged around Manville, once the western world's biggest producer of asbestos products. Those who could be hurt the most would be the thousands of workers who have contracted the debilitating diseases associated with asbestos, but who have yet to be compensated for their injuries.

The latest stage of the battle began on Aug. 26, 1982, when, in a stunning move, Manville filed for protection under Chapter 11 of the federal bankruptcy code. Although the company was financially healthy and pulling in profits, it cited more than 16,500 lawsuits seeking $12.5 billion -- far more than the company's assets -- for asbestos-related health problems. Those suits have been halted while the company has worked to devise a plan for paying off the claims and emerging from bankruptcy.

The legal limbo has lasted for nearly three years, as lawyers for Manville and the asbestos victims grappled unsuccessfully to come up with a mutually acceptable payment plan. The negotiations have been complicated by the requirement of the bankruptcy court that the company account in any settlement for the thousands of individuals who, according to epidemological projections, are likely to contract asbestos diseases in the next 20 to 30 years.

Nine days ago, the ice was broken when the company announced the fund to compensate current and prospective plaintiffs. The proposal was drawn up by Leon Silverman, a New York attorney appointed by the court to represent the interests of future victims.

The details of the plan remain to be worked out, and any final agreement must be approved by the bankruptcy judge, subject to negotiations with attorneys representing the company's shareholders, creditors and other groups. But the proposal is considered a breakthrough because it has the general approval of Silverman and lawyers for current victims, who say that Manville finally has agreed to a sum large enough to accommodate everybody injured by asbestos.

Under the terms of the agreement, Manville has offered to set up a fund initially through a combination of cash, insurance proceeds and stock. Additional cash and stock would be contributed over time as needed, and the trust eventually could own up to 80 percent of the company, with power to oust management. Claimants would be allowed to sue the trust, but not the company, if they believed their particular settlement was too low.

Bankruptcy and product-liability experts say the terms of the agreement are unprecedented. Companies rarely have considered setting up funds to compensate victims of defective products, and the Manville money would represent far and away the most ever set aside for that purpose. The previous largest figure was the $615 million set aside by A. H. Robins Co. to pay victims who suffered injury from the Dalkon Shield, an intrauterine device that Robins distributed between 1971 and 1974.

Henry B. Reiling, a specialist on law and finance at Harvard Business School, said the Manville case was a benchmark signaling two decades of revolution in U.S. product-liability law.

"Only rarely and recently have personal injuries from allegedly defective products been so large in amount and so likely of success in court that claims representing a company's ultimate liability have exceeded the market value of a large, publicly owned manufacturing company," he said.

What was especially novel about Manville's legal squabble was the company's use of the bankruptcy court to protect itself against future liabilities, a tactic plaintiffs' lawyers contended is an illegitimate use of Chapter 11. Manville officials said the tactic was the only reasonable alternative given its circumstances, and some outside experts agree.

"It would not be right to run the business as usual, continuing to pay out dividends, with these things coming down the pike," said one bankruptcy expert, who declined to be identified. Victor Schwartz, a Washington attorney specializing in product liability, added that the bankruptcy filing made sense because it allowed Manville to confine the problem and eliminate the "cloud over its head."

Schwartz predicted that other companies involved with toxic waste damage claims would employ Manville's tactic in the future. "With toxic tort, where there's an open-ended liability, companies are going to be looking at it and considering it," he said.

Other lawyers involved with the case aren't so sure, and some say the bankruptcy move has turned into a colossal legal mistake. Manville has warned for some time that shareholders faced potential dilution of their stock, but nowhere near the 80 percent dilution that could take place under terms of the agreement. Plus, some legal experts say the move backfired because, under bankruptcy proceedings, the company has been forced to account for future claims in one fell swoop, rather than dealing with them on a case-by-case, and hence more manageable, basis.

One plaintiffs' attorney said that Manville hoped when it filed for bankruptcy that it would be able to limit its ultimate liability and squash the right of claimants to settle their lawsuits in court.

"They didn't accomplish a destruction of the jury-trial system," said the lawyer, who insisted on anonymity. Instead, he added, "They succeeded in accelerating the future claims and having to provide for them."

Parties on all sides of the dispute do agree that a final settlement along the lines proposed recently would impose a heavy burden upon Manville, which would see a hefty chunk of its profits essentially ploughed into the trust fund for some time to come. Beyond an initial $815 million, the settlement calls for Manville to fund the trust with a $1.65 billion bond, paid in annual installments of $75 million over 22 years, as well as 20 percent of annual profits indefinitely, if it is needed.

Manville officials say they will be able to offset some of this yearly burden by taking a tax deduction on funds put into the trust. But for a company that had made a little more than $77 million in profits last year, the payments to the trust would be cutting it awfully close, according to analysts. While parties to the dispute said they believe Manville would be able to meet its obligations to the trust, as well as continuing legal costs, observers said there would be room for little else.

Manville's prospects after its emergence from Chapter 11 are further clouded by the dramatic restructuring the company has undergone since filing for bankruptcy three years ago. In addition to a number of changes in high-level management, Manville shed its asbestos-fiber operations to focus on fiber glass, forest products and other segments of its far-flung manufacturing empire.

Company officials say the changes make sense for the long run, but this transformation could hurt in the short term because those asbestos operations were among the most profitable of Manville's lines. Manville's earnings, $2.18 a share in 1984, have slowed dramatically since 1978, when they were $5.62 a share, according to Barbara Alexander, an analyst with Salomon Bros.

"They won't get back to those earnings for some time, because the earnings were positively affected by asbestos," Alexander said.

J. T. Hulce, Manville's president, said last week, however, that the company's current earnings reflected a better mix of businesses. He and other company officials said the company was trying to emphasize products that are connected to the noncyclical side of the economy and therefore are less prone to dramatic rises and falls. For instance, they said, the company is beginning to make a greater move into commercial and industrial roofing, instead of residential shingles, which can be whipsawed by the volatility of housing starts.

Manville officials also said the company will be cutting administrative costs, for instance, by selling its headquarters building in Denver.

"We are going to be running a considerably tighter ship than we have in the past," Hulce said.

For all their problems, Hulce and other officials expressed optimism that there is still enough incentive for Manville to turn its fortunes around. And outside experts, pointing out that companies in worse shape have pulled themselves out of bankruptcy, said it is possible.

"Everyone -- the claimants, shareholders, employes, and management, even the IRS -- has an interest in producing quality products which generate high profits and high cash flow over the long term," said Harvard's Reiling.