A federal judge sharply reduced yesterday the $11.1 billion bond that Texaco Inc. faced in its lawsuit with Pennzoil Co., after Texaco warned it would have to file a bankruptcy petition if forced to post the full amount.

U.S. District Judge Charles Brieant said he would consider a bond or other security worth $1 billion a sufficient amount to protect Pennzoil's interest while Texaco appeals a record damage award approved by a Texas judge last month.

Brieant also ruled that, if the bond is posted, Pennzoil will be barred from trying to enforce its judgment while Texaco appeals. A Texas jury imposed a judgment of $10.35 billion plus interest against Texaco last year, after finding that Texaco had unethically outbid Pennzoil for control of Getty Oil Co. Interest continues to accrue on the award, which also raises the maximum amount of a bond.

Brieant said that Pennzoil should not have been awarded any more than $800 million in damages, plus interest and costs, in the Texas suit, and thus Texaco is "highly likely" to obtain considerably reduced damages.

"The concept of posting a bond of more than $12 billion is just so absurd, so impractical and so expensive that it hardly bears discussion," Brieant said in his written opinion, released yesterday from his White Plains, N.Y., chambers. Texaco had claimed that the bond requirement would "destroy the company as a viable entity before it even commenced the state appellate process in Texas to overturn the judgment." The judge agreed.

A Pennzoil attorney said the company will seek an expedited appeal of Brieant's ruling. A "standstill" order has been imposed on both companies until March 10 by Texas Judge Solomon Casseb Jr. that directs Pennzoil not to file claims on Texaco's assets and Texaco not to file a Chapter 11 bankruptcy petition to obtain court protection against its creditors. Judge Brieant's ruling, if upheld, would stay Pennzoil's hand beyond that date, until Texaco's appeal has run its course.

The two-year-old legal dispute shifted back to Brieant's court this week after settlement negotiations broke off between the two companies in a bizarre sequence of rumors, explosive fluctuations of Pennzoil's stock, and mutual denunciations by the two sides.

On Tuesday, Pennzoil's stock price soared nearly $20 on rumors of a settlement in which Texaco would buy Pennzoil. Pennzoil asked the Securities and Exchange Commission to investigate, complaining of persistent leaks about the settlement negotiations that "must have emanated from the Texaco side." Texaco has denied any responsibility for the rumors.

Pennzoil also informed the SEC that the rumors had begun on Tuesday, before Pennzoil had received Texaco's settlement offer. That offer, when it arrived, proved to be a cash merger proposal that Pennzoil management previously had rejected, Pennzoil said.

Texaco, meanwhile, has filed suit in Texas state court seeking the disqualification of Casseb, who had taken over the Pennzoil-Texaco trial after the original judge became ill. Casseb, 70, has been presiding as a "retired" judge in Houston's state court.