NEW YORK, OCT. 12 -- Salomon Inc., the nation's largest investment banking firm, said today it will cut about 800 jobs and phase out its involvement in municipal bonds, a business it once dominated.

Salomon, parent of the Salomon Brothers investment and brokerage company, said it expects to save $150 million a year through the cutbacks. However, it said costs associated with the cuts would result in a writeoff of $60 million to $70 million this quarter.

Salomon has been hurt by the recent downturn in stock and bond prices, and the company revealed it was "only marginally" profitable in the July-September period.

Fear of a prolonged bear market could lead other investment and brokerage companies to follow Salomon's belt-tightening example, analysts said.

"I think it's going to make other managements think long and hard," said Perrin Long, an analyst for Lipper Analytical Securities Corp. "If they're going to sit back, have their tea and cucumber sandwiches and wait a while, the red ink could be horrendous."

Salomon was the biggest underwriter of municipal bonds for years, but the business has become unattractive because of the invasion of commercial banks, which offer the same service at a lower price, Long said.

Local governments use municipal bonds to raise money for projects ranging from sewers to football stadiums. Commercial banks underwrite the bonds for a lower fee because they are accustomed to lower profit margins than investment banks traditionally earn.

Salomon said it was also exiting two businesses in which it has a smaller presence, commercial paper and short-term bank liabilities.

The company said it would focus on investment banking, including its successful mergers and acquisitions business, and the global stock and bond markets.

Salomon also said it would continue to use its number-crunching expertise to develop a variety of exotic investments derived from more traditional ones.

The company has been under pressure to improve its results since corporate raider Ronald O. Perelman said recently he might buy as much as 25 percent of Salomon's stock in the open market