The District government has settled a suit brought by a retired white firefighter claiming he was denied promotion because of racial discrimination, a week before the case was to have been argued before the federal Court of Appeals here.

The suit, filed by Edward F. Dougherty, was to have been argued alongside a second discrimination suit filed by Dougherty and seven other D.C. firefighters.

Under the settlement, filed Friday, the city will pay Dougherty, of 420 Hawkesbury La., Silver Spring, $41,000 in back pay and pension benefits and will compute his future pension payments as if he had retired in March 1983 as a deputy fire chief.

U.S. District Judge Thomas F. Hogan ruled in March 1985 that the city government had unlawfully retaliated against Dougherty, a battalion chief, after he complained of racial bias in promotions.

Dougherty's lawyer, Robert Bell, said yesterday that the settlement included everything Hogan had ordered in his decision. "Judge Hogan found that the city had a pattern or practice of retaliating against firefighters who complained," Bell said. "We believe the city didn't want a bad ruling (against them) from the appeals court."

Dougherty, who joined the department in 1953, left in 1980 after being told by then-Fire Chief Norman Richardson that then-City Administrator Elijah Rogers had refused Dougherty for promotion because of his criticisms of the city government.

The instances of alleged discrimination about which Dougherty filed his complaints are covered by the second lawsuit, which is to be argued before the appeals court Friday. The city appealed U.S. District Judge Joyce Hens Green's May 1985 ruling that the city discriminated against the eight firefighters when they were passed over for promotions.