After months of public debate and student protest, the University of California regents today rejected a proposal for gradual divestiture of its stock in companies with holdings or subsidiaries in South Africa.

The regents, who administer a $5.5 billion retirement and endowments fund that includes $2.4 billion in such companies, voted instead to appoint an advisory committee to review the university's investments case by case.

The committee is to recommend that the university sell its holdings or decline new investment in any company found lacking in "good corporate citizenship" and lax in promoting racial equality.

Cries of "Shame!" greeted the regents' vote, which followed nationally publicized student protests, including a three-week camp-out this spring on the steps of the administration building here. Fifty spectators, who had entered a lottery for limited seating in the university's extension building, held up black facsimiles of the "pass books" all South African blacks must carry.

As the vote was tabulated, the spectators flung the pass books into the air and marched from the auditorum, chanting, "We'll be back in September!" San Francisco and University of California police said about 60 people were arrested afterward in roving demonstrations.

"I am simply not persuaded that the selling of UC-held stocks and bonds of companies doing business in South Africa would accomplish much more than a change of ownership of the shares to be sold," said university President David Gardner, a regent and author of the successful resolution. "It would surely not end apartheid nor, in my opinion, improve the well-being of non-white South Africans."

"They have taken what they think is a giant step, and it's no step at all," said regent and California Assembly Speaker Willie Brown.

Brown wrote the defeated proposal that would have directed the university to sell all South Africa-related investments if the South African government did not dismantle its racial apartheid system within two years. It would have halted new investment in South Africa-related companies and required the sale of holdings in companies directly aiding the South African government through loans and certain other means.

The university treasurer, in a report earlier this month, estimated that divestiture could have more than doubled the amount of South Africa-related investments that universities and public pension funds have sold in the divestment controversy. The report concluded divestiture would force the university to invest principally in "smaller and more volatile companies."

The report also estimated that establishing a South Africa-free portfolio might cost as much as $100 million in trading and commission costs. That estimate was disputed by faculty members, who called the treasurer's report "shockingly misleading." The faculty's report said the conversion might cost about $18 million.