E.T., the summer's smash box-office space creature, knows that earth candy is dandy. But was it a trail of M&M's he followed, or Reese's Pieces?

"I know there is some confusion," says Deb Ryerson, manager of media relations for Hershey Foods Corp., which makes the candy-coated peanut butter pellets known as Reese's Pieces. "But I understand that children know the difference. It is a different bag."

The confusion is compounded by the recently published book, based on the film's screenplay, in which the extra-terrestrial's favorite candy--clearly described as milk chocolate M&M's--melt in his hand, not in his mouth.

Which sweet did E.T. eat?

Apparently children do know the difference: Hershey Foods reports sales of Reese's Pieces are up 70 percent since the film was released last month.

According to recently published stories, M&M/Mars was approached last year by film director Steven Spielberg's production company, anxious to negotiate a "tie-in" deal with the candy company. But the makers of M&M's declined. A spokesman for the company said yesterday, "We have no record of any such contact. I'm not denying it happened or casting any aspersions on anyone. Maybe it was one of those passing things, maybe it got routed to the wrong person."

But Universal executive Steve Adler reportedly went home that night and asked his son what his favorite candy was. The son replied, "Reese's Pieces."

Which spawned a sweet success story.

"Spielberg's people came to us after M&M," says Jack Dowd, Hershey's vice president for new business development and the man behind the recent Reese's Pieces rise. "Our major concern was what kind of creature was this going to be? Is this going to be an X-rated space creature?"

Spielberg assured the candy company that E.T. was a lovable character in what was to be a family film. In September, Dowd traveled to Hollywood, saw stills from the yet unreleased film and gave the go-ahead.

"I thought he was a strange-looking creature," Dowd says. "But I told all the executives here, 'You're gonna love him.' "

Hershey Foods, with annual sales of more than $35 million, paid no money for the movie plug, which is virtually unheard of in Hollywood promotion deals. And now, with Reese's Pieces sales reportedly skyrocketing, the company--which introduced the candy in 1978 without much fanfare--is gearing up for an extra-terrestrial promotion campaign, selling E.T. stickers, posters and T-shirts with "proof of purchase" from bags of Reese's Pieces.

"We've set up displays in 800 theaters," says Dowd. "One distributor called and ordered 75 cases. The next day, he called back and wanted 200 cases. The day after that he ordered 200 more cases. He couldn't understand why we couldn't deliver right away."

Closer to home, movie-goers at the K-B Cinema Theater on Wisconsin Avenue munch Reese's Pieces along with E.T.

"The kids are recognizing them in the machine and begging for them," says manager Kathleen Mullin.

Next door, Rodman's Discount Drugs is offering a 25-cent discount on E.T.'s favorite candy for patrons who produce a ticket stub. But the store manager says he's keeping his options open by offering the special deal on both Reese's Pieces and M&M's.

Says manager Gary Neuman, "I think more people think it's M&M's than Reese's Pieces."