DETROIT, AUG. 12 -- The chairman of Knight-Ridder Inc. said today that he will recommend shutting down the 156-year-old Detroit Free Press if the Justice Department rejects a cost-cutting joint operating agreement with The Detroit News.

Since 1979, Knight-Ridder has poured $176 million into the Free Press' struggle against the News, and both papers are still losing money, Alvah H. Chapman Jr. testified in Justice Department hearings on a proposed joint operating agreement.

Without the requested limited antitrust exemption, Chapman said, "It would be my recommendation to the board that they close down the Free Press and dispose of its assets."

Chapman said he concluded in the early 1980s that Detroit could not support two independent newspapers. "It pains me to say that the only solution is a JOA," he said.

In a presentation for a March 1986 management conference, Free Press Publisher and Chairman David Lawrence Jr., President Jerome S. Tilis and General Manager Robert J. Hall cited improving prospects for eventual profitability and "momentum in circulation."

The next month, Chapman and Allen H. Neuharth, chairman of Gannett Co. Inc., the owner of the News, announced the proposed joint operating agreement, saying the Free Press was in danger of failure.

Chapman testified that while Free Press officials were optimistic, his view was that "absent a joint operating agreement I didn't feel the Free Press could become profitable in the 1980s, or any time in the foreseeable future."

Chapman said he didn't tell his opinion to Free Press executives because it would have been a "devastating experience" to Lawrence, whose job was "was to be positive about the Free Press, to motivate the people."

The Free Press has no prospect of profitability "absent some major mistake by the Detroit News, absent a JOA," Chapman said. "The same holds true for the News."

Allen H. Neuharth, Gannett's chairman, had testified that the News could either eventually vanquish the Free Press or coexist under a joint operating agreement, preferably the second alternative.

Gannett and Knight-Ridder say the News and Free Press lost $142 million from 1981 through the first quarter of 1987.

The Newspaper Preservation Act of 1970 allows U.S. Attorney General Edwin Meese III to approve a joint operating agreement if one paper is in danger of failing and an agreement would preserve independent editorial voices