DETROIT, AUG. 3 -- Only the financial support of a large parent company, Knight-Ridder Inc., keeps the Detroit Free Press alive, a lawyer for both of the city's daily newspapers said today.

Without a limited antitrust exemption to let the Detroit News and the Free Press merge advertising, circulation and production operations, the Free Press would face "near-certain death," attorney Philip Lacovera said at a federal hearing on the competing newspapers' request to merge business operations.

The Free Press, founded in 1831, and the News, founded in 1873, would operate separate news and editorial departments under the proposed joint operating agreement.

Morton Needelman, a retired administrative law judge appointed by the U.S. Justice Department, opened hearings today on the request. He will recommend to U.S. Attorney General Edwin Meese III whether to approve the agreement.

To approve a joint operating agreement under the Newspaper Preservation Act of 1970, Meese must find that one newspaper is in danger of financial failure and that an agreement would ensure survival of independent editorial voices.

Miami-based Knight-Ridder, owner of the Free Press, and Gannett Co. Inc., the Rosslyn-based owner of the News, say the two newspapers lost $142 million from 1981 through the first quarter of 1987 and maintain that Detroit's economy cannot support two independent papers.

The proposal is being challenged by Mayor Coleman Young, who said a merger would decrease editorial independence, and newspaper employe unions that fear jobs would be lost under a joint operation. Each newspaper has about 2,200 employes, 1,900 of them in the business and production departments.

Duane Ice, a lawyer for five unions that represent employes at the two papers, said in his opening statement that the newspaper losses were due to extraordinary competitive measures aimed more at dominating the Detroit market than at survival.

"The legislation refers to newspapers which are unable to maintain their circulation, not newspapers unable to achieve dominance," Ice said.

Seymour Dussman, attorney for the Justice Department's antitrust division, said the newspapers would have to prove their contention that the News dominates the city's newspaper market since that newspaper "has also lost substantial amounts."

Lacovera said the Free Press could not operate independently.

"It is publishing this morning because it has received $178 million in cash advances," he said. "It has not been able to pay its bills on the basis of the revenues it has been able to generate."

Lacovera also argued that in a two-newspaper market, "Survival and the pursuit of dominance are virtually synonymous. The plight of newspapers that are in second place is near-certain death."

The News has a circulation of 678,399 daily and 839,319 on Sundays. The Free Press circulation is 639,720 daily and 724,342 Sundays, according to publishers' statements for the six months ended March 21.

About 100 people attended the opening of the hearings, more than a year after Knight-Ridder and Gannett proposed the agreement and announced formation of the Detroit Newspaper Agency in April 1986.

Under the proposal, the Free Press would continue publishing morning editions Monday through Friday. The News would end morning editions but continue publishing afternoons. The newspapers would publish joint editions Saturdays and Sundays. Editorial pages would remain separate.

For most of the proposed 100-year agreement, profits and losses would be divided equally. In the first five years, however, the money would be divided on a sliding scale, with Gannett initially receiving 55 percent and Knight-Ridder 45 percent