Government authorities waded timidly yesterday into the fray over online stock trading.

Two long-awaited studies were released, one by Laura Unger of the Securities and Exchange Commission and one by New York Attorney General Eliot Spitzer, detailing the online trading industry's enormous benefits and evolving problems, which have sometimes forced investors to pay tens of thousands of dollars more for stocks.

Both reports lay out some guidelines for the industry, suggest areas that need further study, and stress the need for more disclosure and investor education. Early next year, the New York attorney general's office and the Securities Industry Association, a trade group, will spend $500,000 to run full-page ads in newspapers across the country to educate investors about online trading.

Despite the enormous impact online trading is having, regulators say they must move carefully to keep from killing the industry. "I don't want to stamp out the online brokers, and I think if we came down too hard on them right now that's what we'd do," Unger said.

The investor education campaign is intended to counter the sometimes over-the-top advertising of online brokerage firms. The Spitzer report said aggressive advertising-- claiming that online trading is easy, fast and cheap and that those who don't do it will get left behind--have left investors with false expectations. A recent Lehman Brothers Inc. report estimates that the eight largest online brokers will spend a combined $1.2 billion on advertising in fiscal 2000.

Spitzer's report, the result of a nine-month investigation triggered after his office received a dramatic surge in complaints from online investors, said that firms should "tell the truth" about their technology and services but that the government should avoid putting "regulatory handcuffs" on firms. The recommendations focused on narrower requirements that firms keep documents on outages and customer service records and improve their disclosure of problems.

Unger's report, the result of a 10-month investigation, included recommendations that the SEC develop guidelines to help groups such as the National Association of Securities Dealers regulate broker's dealings with investors. She also recommended that firms improve their records of outages, conduct regular systems testing and disclose more problems to customers.

Unger said that the aim of her report was to "provide a framework for the commission to discuss these issues" and that "this is a starting point for discussions."

New problems continuously crop up that add to the complexity of the issues, Unger said. "So much is evolving so quickly that you don't want to put something in stone," she said.

Unger said one of the key points of her report was her recommendation on the suitability rule. Brokers are only supposed to recommend stocks that are suitable to a customer. If an investor goes online merely to execute a trade, most industry experts agree the suitability rule does not kick in. If an investor executes an online trade because of a broker recommendation, the suitability rule applies.

The big question mark has been: What happens if an online broker begins sending e-mail recommendations to customers based on their trading activities and stock holdings, much as might recommend a book based on previous purchases? Unger's report said the the suitability rule might apply, depending on how finely an individual was targeted. The smaller the number of people who received the recommendation based on very customer-specific data, the more likely that a broker would have to worry about the suitability rule.