There is "insufficient evidence" to say that sodium nitrite, a sharp-tasting preservative found in most processed meats, can cause cancer, two federal agencies decided yesterday.

The finding based on a new review of a major 1978 study that found nitrite caused animal cancers, ends any attempt to ban the chemical by the Food and Drug Administration and the Agriculture Department.

The two agencies began considering such a move two years ago, when Dr. Paul Newberne of the Massachusetts Institute of Technology said the chemical caused lymphomas -- lymph gland cancers -- in rats. The new scientific review by a group of independent pathologists disagrees with that finding.

Nitrite is used to prevent often deadly botulism and to add color and flavor in most hot dogs, sausages, bacon, hams and lunch meats. It is present in two-thirds of all pork products and one-tenth of all beef products.

There is still either worry or uncertainty among scientists about its safety and effects. There is concern at the Agriculture Department and the FDA about possible genetic effects and about the fact that nitrite can produce cancer-causing derivative products, nitrosamines, during cooking or in the body after being eaten.

Monitoring of bacon and other meats for nitrite content and nitrosamine production will continue, said Sydney Butler, head of the Agriculture Department's Food Safety and Quality Service. The FDA and the department will also commission the National Academy of Sciences to review all known facts and to suggest more research.

"I think it's a situation in which we have to wait until we know more," said Dr. Jere Goyan, FDAcommissioner. "I think we should eat a well-balanced, nutritious diet and not be concerned about cured meats," except to eat them in moderation.

"I had a hot dog for lunch," he added.

MIT's Newberne reported in 1978 that 12.5 percent of 1,381 nitrite-fed rats developed lymphomas, but only 5.75 percent of 573 normally fed rats.

The FDA and the Agriculture Department began plans to phase out nitrite over several years, while food processors sought other ways, like freezing, to prevent botulism. But the Justice Department said that, if nitrite indeed caused cancers, there would have to be a complete ban under present law.

Newberne urged a phaseout, but also said his results should be confirmed in other animals before any extensive ban. No such study has been started, but the FDA and the Agriculture Department asked a Washington-based group, Universities Associated for Research and Education in Pathology (UAREP), to review 50,000 of Newberne's slides.

A UAREP panel found no significant excess of rat lymphomas, and a federal interagency group concurred. UAREP said some of the supposed "lymphomas" were noncancerous, and some were histiocytic sarcomas, cancer peculiar to some rate (with no known human counterpart, though there are human histiocytic lymphomas).

Years ago many consumer groups petitioned the Agriculture Department and the FDA to ban nitrite because of its role in itrosamines. The department instead began monitoring meats and ordered other controls to keep bacon and other products from forming any detectable nitrosamines during cooking.

On June 26 the department announced that except for dry-cured bacon -- 1 percent of all bacon -- there are less than 10 parts per billion of nitrosamines produced in preparation of all cured meats on the market, and control of dry-cured bacon will start. Bulter called this "a clean bill of health" for virtually all cured meat products.

But Ellen Haas of the Community Nutrition Institute said consumers still "do not have a clean bill of health" because there are still doubts about nitrite, and "no assurance that there is any safe tolerance level for nitrosamines."

Early this year, Dr. Donal Kennedy, president of Stanford University and FDA commissioner in 1978, also said use of nitrite still can't be called safe, and said efforts should be made to seek substitutes.

Disagreeing with such views, the American Meat Institute yesterday welcomed the decision by the two federal agencies, and said "the American consumer [is] the real beneficiary."