The crew of the Coast Guard cutter that was rammed Friday night by an Argentine freighter in an accident that killed 11 people realized only at the last moment that lights they spotted 15 minutes earlier were the frieghter's and that the cutter was crossing its path, an official familiar with a secret Coast Guard report said yesterday.

The crewmen on the training ship Cuyahoga were confused and "grossly misinterpreted" the lights of the freighter, according to the official.

"It was not confusion of a navigational sort, but confusion over whether or not it (the lights) was a ship," the official, who asked not to be named, said.

His statement came as rear admiral presiding over public hearings by a seven-member Coast Guard Board of Injury into the accident told the captain of the 51-year-old training ship that he was "a suspect" in its collision with the freighter Santa Cruz II in Chesapeake Bay.

The Cuyahoga sank within minutes of the collision, trapping 11 crewmen inside the sinking hull in the worst Coast Guard accident 10 years.

Yesterday as the board began public hearings into the accident in a cramped conference room at the Customs Building here, it swept away objections from lawyers for the freighter and its Chespeake Bay pilot that the board was biased. The lawyers complained that the board should not investigate the accident since four members are Coast Guard officers and two are former officers, which creates an appearance that the service is investigating itself.

Rear Adm. Raymond H. Wood of Washington, head of the board which is gathering evidence to present to the Coast Guard commandant for possible action, said outside the hearing room, "I'm satisfied my authority is clear to proceed."

The board does not have the power to impose fine or punishment, Wood added. However, evidence the board gathers can be used later in criminal proceedings in either civillian or military courts, Woods said.

The secret report that implicates the cutter's crew was not made public yesterday but was presented to the board outside the hearing room. After the board read the report, a lawyer for the Cuyahoga's captain, Chief Warrant officer Donald K. Robinson, a 27-year-Coast Guard veteran, asked if his client was "suspected od committing any offenses." The members of the board said they had not prejudged the accident.

However, citing the advice of his lawyer, the grim-faced Robinson took the stand and limited his testimony to genreal information on the ship and the training program the officer candidates were involved in. He would not discuss events leading up to the accident.

Named as "parties in interest," in the investigation were Robinson, but pilot John Hamill and Abelando Albernoz, the captain of the Argentinian government-owned freighter, who sat with an interpreter throughout the proceedings. Large ocean-going ships like the Santa Cruz are required to have a bay pilot aboard when they travel from Baltimore to the mouth of the Cheaspeake Bay.

Yesterday Robinson stood over a blueprint of his sunken vessel - which he expects will be salvaged - answering questions on the operational condition of the ship's equipment. According to Robinson, the ship's radar was not malfunctioning and the running lights were on. Robinson also told the board "all of my experience has been practical" and explained that the weekend cruise the ended in tragedy last week was designed to give the young men "on the job training."

At the opening of yesterday's hearing, there was a moment of silence for the dead crewmen. Outside in the hall, five survivors of the Cuyahoga waited behind a partition to be called as witnesses. They are expected to give testimony today.

After reading part of an interview Robinson gave investigators, Wood advised the Coast Guard captain of his right ot remain silent on questions concerning the collision, which, Wood said, could be used against him in the event of a court martial.