Federal Reserve Board Chairman Paul A. Volcker is advocating that the United States and other major nations agree to intervene modestly in foreign exchange markets to control extreme fluctuations in the value of the dollar compared with other major currencies.

In a private address to the Trilateral Commission here tonight, Volcker reportedly offered his suggestion as one with limited goals.

Europeans in the audience said that Volcker's endorsement of such a plan might enhance chances for early acceptance and that it would provide a tonic for the world economic system.

The question of how to deal with fluctuating exchange rates has been a matter of intense debate lately. Although market intervention has been opposed by the Reagan administration, it will be a major topic at the Williamsburg, Va., economic summit at the end of May.

It was learned that Volcker specifically ruled out as counterproductive any notion of a new Bretton Woods conference or any suggestion of a complete return to fixed exchange rates. The Bretton Woods Conference of 1944 tied the international monetary system to gold, priced at $35 an ounce.

That system was abandoned by then-president Richard Nixon in August 1971, when he broke the link between gold and the dollar. Since then, exchange rates have been allowed to fluctuate against each other according to the dictates of the foreign exchange market.

Volcker is understood to have told the Trilateral Commission, which began a three-day meeting this morning, that it is proper to let the foreign exchange markets operate when they can do the job. But he said major nations should be prepared to step in when the markets are overshooting and when the kind of limited intervention he recommends is clearly in the interests of the countries involved.

Exchange rate intervention takes place when a country that wants to keep its currency from rising too high offers to sell relatively large amounts of it in the markets, thus depressing the price. When the currency moves too low, the country can try to reverse the process by buying the currency.

Until the Reagan administration took office, it was common practice for the United States to intervene in the markets to adjust currency relationships. But the Reagan administration was firmly opposed to intervention and entered the markets only on the rarest of occasions.

There were reports here tonight that a study on exchange market intervention, commissioned by the Versailles summit in 1982 and scheduled to be unveiled at Williamsburg, will declare that although intervention is a limited tool that does not change fundamental trends, there are times when judicious intervention can usefully supplement other national economic policies.

According to those who heard him, Volcker made clear that he was talking about a most modest kind of intervention.

He is understood to have suggested that exchange rate intervention on the scale he recommended was not a substitute for changes in questionable national economic policy. For example, he called--as he has repeatedly in recent congressional testimony--for reduction of the U.S. domestic budget deficit to avoid a new rise in interest rates.

Here at the Trilateral Commission meeting, there are fears that unless a major dent is made in the U.S. budget deficits now expected for the next several years, there will be large capital inflows into the United States, and hence, new strength for the dollar in exchange markets.

The present system of exchange rates that are completely free to move has been attacked by businessmen and others as allowing excessive or erratic fluctuations. American businessmen have said that the large premium that the dollar commands against the Japanese yen prevents them from competing with Japanese exporters. Japanese businessmen, on the other hand, say that wildly fluctuating exchange rates in the yen prevent them from planning sales and purchases with any certainty. Europeans make similar complaints.

The Reagan administration has resisted all efforts by Europeans and Japanese to persuade it to intervene more substantially in exchange markets. The White House view has been that the market should be the sole judge of what a proper exchange rate should be.

This case was made with great force just 10 days ago in a speech by Martin Feldstein, Reagan's chief economic adviser, to the Council on Foreign Relations in New York.

Volcker is said to believe that although it may be impossible at times to measure the precisely correct exchange rate, financial officials ought to be able to say when it is clearly out of line, and do something to modify it, within the framework of the existing floating-rate system.

The Trilateral Commission is a private group of businessmen, intellectuals and bankers from the United States, Japan and Western Europe who meet annually to discuss major economic, political and strategic issues.