At first the New York Times stood by the controversial story about its rival, even after James Hoge, publisher of the New York Daily News, labeled it "a total fabrication."

But this week the embarrassed Times published an "Editors' Note" saying the story about the two-month-old strike at the Daily News violated the paper's standards. Deputy Publisher Arthur Ochs Sulzberger Jr. and Executive Editor Max Frankel called Hoge to apologize.

Reporter David E. Pitt had quoted an unnamed official of the Tribune Co., which owns the News, "speaking on condition of anonymity." The official said the company had killed a possible labor settlement negotiated by Hoge.

Pitt later admitted to his bosses that the purported corporate official was "an anonymous caller" and that Pitt "never learned the identity of his telephone source," as the editor's note put it.

Metropolitan Editor Gerald M. Boyd says the reporter broke the rules of "Journalism 101. ... There was a fundamental breach here that dealt with the fact that he took information from a source he didn't know and put it in the story as fact."

Boyd says Pitt has been taken off the story and that no decision has been made on disciplinary action. Pitt did not respond to a request for comment.

Hoge says he is satisfied with the Times's response. But, he says, "I don't think it's good for the craft for a good reporter to get caught in that situation ... particularly in an atmosphere in which disinformation is prevalent."

Pitt's first story last week said Hoge "thought he had a deal" with the News's striking drivers union, but that the Tribune board "shot it down" in Chicago. Pitt's follow-up the next day led with Hoge's "fabrication" charge but did not back off the story, saying the Tribune official could not be reached.

Boyd says he felt "misled." Asked if the editors should have been more vigilant, he says: "I went to the reporter. I asked him, was he comfortable about the source? Yes, he was comfortable with the source. I asked him to go back to his source. I don't know what else we could have done short of demanding to know who his source was."

Where There's Smoke ...

Newsweek Publisher Peter W. Eldredge sent a letter to all members of Congress last month, reminding them of "our long-standing tradition of covering family-related issues."

Enclosed was a full-page Newsweek ad from the Tobacco Institute announcing its campaign to discourage young people from smoking. Anti-smoking groups have called the industry group's campaign an effort to head off tougher restrictions by federal and local authorities.

Eldredge says the letter "was really innocuous" and that the mailing was done as "a service" because "we were asked to do so by the Tobacco Institute." He says that "we've come out on both sides of the issue. We've run several stories about the pros and cons of smoking." After Newsweek editors were asked about stories citing the pros of smoking, Eldredge called back to say he meant that "we try to bring a balanced approach" to the issue.

Editor in Chief Richard M. Smith says he was unaware of the mailing, "in the tradition of the church-state separation" between the editorial and business staffs. "I would prefer to let the journalism in the magazine speak for itself in terms of our communications with Congress," he says.

Walker Merriman, a Tobacco Institute spokesman, maintains that Newsweek "offered" the congressional mailing on its own. "We were very careful to see that the cover letter did not seem to endorse the project," he says.

But Fran DuMelle, chairwoman of the Coalition on Smoking and Health, says Newsweek "has been co-opted by the industry" that "advertises quite heavily in their magazine."

Eldredge says Newsweek has also done congressional mailings for the Beer Institute, the National Association of Home Builders and other lobbying groups. The publisher of U.S. News & World Report sent members of Congress an ad for a nuclear industry group last fall, but a magazine spokeswoman called the mailing "a terrible mistake" that would not be repeated.

Srictly Confidential

After toiling as a ghostwriter for convicted junk bond king Michael Milken, Mary G. Gottschall decided to tell all about Milken and the high-powered K Street PR firm that hired her.

The firm, Robinson, Lake, Lerer & Montgomery, was not amused by her piece in the current issue of Regardie's magazine. Its lawyers have sent Gottschall a letter accusing her of violating a confidentiality agreement she signed as an employee and raising the possibility of legal action.

Gottschall, 33, of Falls Church, says she forgot she had signed such an agreement and has agreed not to write or speak further about her one-year stint at the firm. She declined to elaborate except to say, "I wrote the article because Milken is a public figure and I felt it was in the public interest to let people know as much as possible about what happened."

But James Lake, the firm's chairman, says, "It troubles us a great deal when someone breaches the basic principles of judgment and character. ... We're not interested in money reparations of any sort. What's at stake here is confidentiality and integrity -- hers and ours."

Gottschall was dismissed by Robinson, Lake last June and started work on the article a few months later. The firm had sent her to Beverly Hills, Calif., to write a coffee-table book on junk bonds for Milken, who she says paid the firm $50,000 a month.

Gottschall describes Milken in the piece as "personable, self-effacing, down-to-earth," even if he did wear a "cheap" toupee. But she says Robinson, Lake was peddling "smoke and mirrors" to its clients, quoting one executive as saying their job was "writing propaganda" and leaving "no fingerprints."

"She paints a picture I think is unfair and inaccurate and wrong," says Lake, a former chief campaign spokesman for President Reagan. "We help businessmen deal with an environment -- the press -- with which they're not familiar." Among other things, Lake denies Gottschall's assertion that he routinely travels in stretch limos, saying he usually takes taxis.

Regardie's Editor Brian Kelly says that muzzling Gottschall could set a "chilling" precedent. "It's a legal gray area," he says. "Unless you're working for the CIA, there's no way anybody can prevent you from talking."

Correction of the Year

Following a story last year in the Fresno Bee:

"An item in Thursday's {paper} about the Massachusetts budget crisis made reference to new taxes that will help put Massachusetts 'back in the African-American.' The item should have said 'back in the black.' "