Attorney General Griffin Bell yesterday overruled his own Antitrust Division and approved the merger of two conglomerates that own the nation's seventh and eighth largest steel companies. The new corporation will be one of the 25 largest U.S. industrial companies and the fourth largest steel producer.

The merger will make Lykes Corp. and its ailing Youngstown (Ohio) Sheet and Tube Co. a part of LTV Corp., which owns Jones & Laughlin Steel.

The merger, which stockholders still must approve at annual meetings later this summer, would create a diversified conglomerate second in size only to International Telephone & Telegraph Corp. LTV and Lykes are engaged in livestock slaughtering, ocean shipping, chemicals, missile production, aerospace and oil rig manufacturing, among other ventures.

In overruling recommendations of the Antitrust Division and Assistant Attorney General John Shenefield, Bell acknowledged that existing steel industry competition between the Lykes subsidiary and Jones & Laughlin would be eliminated.

But the transaction is necessary, Bell continued, because Lykes is a "failing company" that makes it an exception to antimerger provisions of federal antitrust statutes. "Its lines of bank credit have been canceled," he noted.

Jones & Laughlin, a Pittsburgh firm that is the country's seventh largest steel manufacturer, was acquired by LTV (then Ling-Temco-Vaught) in 1970. When that merger was challenged by the Justice Department, Dallas-based LTV signed a consent agreement that requires prior government approval for the acquisition of any company with assets of more than $100 million.

The Lykes steel subsidiary, Youngstown Sheet and Tube, closed most of its aging steel production facilities in the Mahoning River Valley region around Youngstown last September, costing 4,700 steelworkers their jobs. Youngstown blamed foreign competition. The valley has been an important industrial center since iron production began there in 1803.

Without the merger approved yesterday, according to Ohio officials and union representatives, the prospects for the survival of remaining Lykes Corp. steel operations was bleak and another 6,000 Youngstown sheet and Tube jobs in the valley could have been lost.

Bell appeared to support this view, stating that a department investigation concluded that Lykes "could run out of cash during the second half of 1978."

By March 31, 1979, the Lykes deficit could increase to about $130 million and perhaps twice that amount, Bell added. Company reports show that Lykes, based in New Orleans, operated with a pretax deficit of $229 million in 1977 and a similar deficit of $26 million in the first quarter of this year, mostly from steel operations.

"There doesn't appear to be hope for any significant improvement in the situation, and the company's relationships with its suppliers are deteriorating," Bell said of Lykes in his decision, the first major antitrust action by the Carter administration.

Antitrust Division lawyers argued against the merger "with some exceptions," Bell said. "Nevertheless, those concerned with the matter in the department agreed it was a very close question," added the attorney general, who met with company officials twice before making his decision.

His staff reportedly wanted to contest the merger in court as the best method of determining the impact of a Jones & Laughlin-Youngstown Sheet and Tube combination on the troubled steel industry. The merger was proposed last November after Lykes began searching for a partner, in the face of declining business and soaring debts. Involved would be an estimated $200 million exchange of stock, creating a company with $6.5 billion in annual sales.

American steel manufacturers' business has been sagging since 1976 and a number of old manufacturing plants have been closed, primarily in the northeastern states. Orders for steel declined in a delayed reaction to the recession and, despite a recent upturn, domestic steel plants still are operating below capacity in the wake of imports.

William Sullivan Jr., president of the Steel Communities Coalition and the Western Reserve Economic Development Agency in Youngstown, said there is a "real possibility" that the merged LTV-Lykes management will move to close remaining basic steel facilities of Youngstown Sheet and Tube, laying off another 1,200 in his depressed region in favor of more modern J&L facilities at Aliquippa, Pa. But LTV has said it would initiate no such closing for at least 18 months.

The attorney general's course is preferable when compared with the possibility that all 6,000 Youngstown Sheet and Tube workers in Ohio could lose their jobs if the company failed, Sullivan stated. The company also employs 8,800 in Indiana Harbor Ind.

"A year ago, we were the headquarters city and producer of 50 percent of the output of the eighth largest [steel] company . . . now we're a minor percentage of the fourth largest company . . . but that's better than being a small part of production for a company slipping into bankruptcy with incredible speed," Sullivan said in a telephone interview.