With the Republican National Convention in town and a special convention issue written, the Detroit Free Press, one of this city's two major newspapers, was shut down tonight by striking Teamsters.

The newspaper told its editorial employes that Sunday's editions were canceled at 7:40 p.m., five hours after 550 circulation workers walked off their jobs and placed pickets around the newspaper's buildings.

There were no new negotiations scheduled, and indications were that the paper would not publish during the week of the convention.

The announcement was a major blow to the paper, which had spent $2 million and 14 months preparing the convention kickoff edition.

"Everyone is just shattered by the whole thing," said managing editor Neal Shine after informing staff members of the decison not to publish. "It's like everything they've worked for the whole year has been kicked out from under them.

"We've had strikes before. Usually when you tell the staff about them there are questions," he added. "This time there was just silence."

Teamsters Local 372 has worked without a contract since June 17. The members rejected management's final wage offer by a 12-vote margin this afternoon.

The paper had invested more time and money in its Sunday edition than any edition in years. It had planned to publish a 56-page convention magazine, 16 extra pages of convention news and added 15 extra pages to its TV magazine. "I can't think of anything that would devastate morale any more than this," said executive editor David Lawrence.

The Detroit News, the city's other newspaper, was scheduled to publish Sunday and throughout the week, giving it a marked competitive advantage in this city that has been engaged in a bitter circulation battle for years.

In 1967, when unions struck the Detroit News, The Free Press locked out its workers in a show of publishers' unity against the unions. But Robert Nelson, general manager of the News, said tonight no new publishers' agreement exists that would lead the newspaper to shut down this week.

"I think each paper makes its decision on what to do in these cases," Nelson said. "We're publishing Sunday. Beyond that, I don't want to comment."

Last year, The Free Press had a daily circulation of 617,605 and a Sunday circulation of 715,657. The News recorded in 1979 a daily circulation of 631,836 and a Sunday circulation of 820,139.

The two newspapers have invested hundreds of thousands of dollars covering the primary season and planning the convention coverage in hopes of bolstering their local and national reputations.

"I'm confident we would have shown the sort of newspaper The Free Press -- a quality, first-class newspaper -- is to a lot of people who normally wouldn't see it everyday," said Lawrence.

The proposed contract rejected today would have given the Teamsters a 9 percent increase for the first year and 4 1/2 percent pay hikes in each of the next two years. In dollar terms, the rejected contract would have given the members an additional $31 per week this year and at least $17 per week more for each of the next two years.

The contract also called for annual cost of living adjustment -- 9 percent for the first year and 7 percent for the next two years.

"The membership considered that what they rejected was not a fair contract," said Elton Schade, secretary-treasurer of the striking local.

Free Press President Don Becker, in a statement, said "the wage and fringe package we offered is generous and fair, particularly so when you consider the economic difficulties in Michigan."

Becker also pointed out that it was the same pact that Teamsters working at the Detroit News ratified on June 17.