C. William Verity Jr., a retired steel company executive who headed President Reagan's private sector initiative in the early days of the administration, is the leading candidate to replace the late Malcolm Baldrige as secretary of commerce, administration sources said yesterday.

Verity, who retired in 1982 as chairman of Armco Inc., a company his grandfather founded, has not been offered the job as the successor to Baldrige, who was killed July 25 in a freak rodeo accident. But he undergoing FBI background checks, and officials said Reagan wants to announce Baldrige's successor before leaving Thursday morning for a 25-day California vacation.

Verity, 70, cut short a Colorado vacation yesterday and returned to his home in Middletown, Ohio.

He made a favorable impression on Reagan in 1981, when he was named chairman of the President's Task Force on Private Sector Initiatives that was designed to stimulate voluntary public action as a replacement for big government. The 44-member commission operated on private contributions out of a government-owned town house near the White House.

The commission was Reagan's pet initiative for voluntary action to offset cutbacks in many government programs. When Verity turned in the commission's report in December 1982, Reagan beamed and said, "You have all set the stage for a rebirth of creative approaches to meeting human needs."

Verity's name was not mentioned in early speculation over a successor to Baldrige, a highly popular Cabinet member who played a leading role in forming administration trade policy. U.S. Ambassador to France Joe Rogers and two top Commerce officials had been considered the leading candidates.

Verity emerged, seemingly out of the blue, on Thursday when Reagan's closest White House aides met with the president to discuss picking a successor to Baldrige.

Verity is a former chairman of the U.S. Chamber of Commerce, which is likely to assure strong business support for his nomination. But he may run into opposition from conservative groups because of his strong support for increased trade between the United States and the Soviet Union.

He served in 1984 as cochairman of the U.S.-U.S.S.R. Trade and Economic Council, a private organization of American and Soviet business executives, and asserted that U.S. companies lost at least $10 billion a year in sales to the Soviet Union because of government restrictions.Verity may run into conservative opposition because of his support for U.S.-Soviet trade. "Trade is trade," he said then, and should be separated from politics.

Baldrige also had pressed for closer trade ties between the United States and the Soviet Union, opening up official relations between the two countries' trade ministers in 1985 for the first time since Moscow invaded Afghanistan in 1979.

In a New York Times interview in May 1984, Verity said the Soviets were able to purchase the technology they wanted elsewhere and only U.S. manufacturers were being harmed by the export restrictions.

His company, Armco Inc., lost a $353 million agreement to build a steel mill in the Soviet Union when its export licenses were canceled after the Russian invasion of Afghanistan. A French company took over the project.

After Balridge's death, there was intense speculation here over whom Reagan would pick as the new Commerce secretary.

Early contenders were reported to include Rogers, a Tennessee businessman and early Reagan supporter; Deputy Commerce Secretary Clarence Brown, a former congressmen who lost his bid to become governor of Ohio; Commerce Undersecretary Bruce Smart, a retired corporate executive who had support from business groups and was reported to have been the man Baldrige had indicated he wanted to succeed him; Joseph R. Wright Jr., deputy director of the Office of Management and Budget; former congressman and senator James T. Broyhill of North Carolina, defeated by Terry Sanford last November for the Senate seat, and former Rep. Edwin Zschau of California, who retired from the House to run against Sen. Alan Cranston.

Staff writer David Hoffman contributed to this report