The Treasury Department, responding to turmoil in European bond markets, yesterday said it would propose legislation to exempt from taxation bonds issued through the Netherlands Antilles.

The move reversed a departmental action taken just three days ago that would have subjected the bonds to a 30 percent withholding tax.

The announcement came after two U.S. firms said yesterday that they were calling in the bonds, a move seen as likely to anger the foreign investors who held them.

"Assuming that it passes, I think it will give overseas investors more confidence," said Clive Bergel, managing director of the investment banking firm Bear, Stearns & Co. "The Treasury found they were getting a lot of flak {before proposing the exemption}. There were institutions all over the world that had bought these pieces of paper, and somewhere before maturity we were changing the rules of the game."

The confusion began Monday when the Treasury announced it was unilaterally terminating the tax treaty between the United States and the Netherlands Antilles, a set of Dutch-controlled islands in the Caribbean that has become a popular haven for U.S. companies wishing to raise funds cheaply on the Eurobond market.

Before 1984, interest on bonds issued from the Antilles was exempt from the 30 percent withholding tax normally imposed on foreign investors receiving U.S.-source income, so issuers could offer a lower interest rate and still sell the bonds.

Congress repealed the withholding tax in the middle of 1984, but it remained in effect for bonds that already had been issued. The effect of canceling the treaty -- which was done for other reasons -- was to end the exemption from the tax that those pre-1984 bonds had enjoyed.

Analysts had predicted that the imposition of the tax would lead issuers to redeem the bonds, depriving investors of a substantial premium because the bonds were issued when interest rates were higher than current levels.

Treasury's announcement that it would seek the exemption seemed designed to restore calm to the Eurobond market, experts said. However, they pointed out, proposed legislation is not the same as law.

Stephen A. Nauheim, co-counsel in Washington for the Netherlands Antilles, said the exemption would do nothing for the Antilles. Negotiations on the new treaty had been under way for eight years and a new treaty had been tentatively agreed on in 1986. Last year's changes in the tax code made it necessary to seek revisions, but no agreement was reached.

"The proposed changes leave the law just where it is right now," Nauheim said. "I can't believe that's going to quiet the Eurobond market."

Before the announcement, Caterpillar Inc. said it would redeem a total of $440 million in zero-coupon guaranteed notes because of the tax-treaty termination, and RJR Nabisco Inc. said it would redeem $400 million in zero-coupon notes. It could not be learned whether the companies had changed their plans as a result of the Treasury decision to propose an exemption.

Other companies wishing to redeem their bonds probably now will have a harder time making a legal justification for it. Although the provisions of most Antilles bonds allow them to be called if the tax laws governing them are changed, Treasury's reversal returns the situation to the status quo for the affected bonds -- those issued before June 22, 1984.

"If you haven't sustained any harm because the Treasury has fixed it up, you are not going to have a very credible case" in the event of a bond-investor suit, said Willard Taylor, a partner in the law firm Sullivan & Cromwell.

Chances of passage for the proposal are unclear. It needs to be approved by Jan. 1, 1988, the effective date of the treaty's termination. But legislators on the House and Senate tax-writing committees have a busy agenda this year, and they are concerned about increasing the federal deficit. The House Ways and Means Committee has asked the Treasury to estimate the amount of tax revenue that would be lost if the Antilles exemption were approved.