LIMA, PERU, AUG. 8 -- Peruvian President Alan Garcia suspended a state takeover of the nation's private banks last night but said his ruling party will seek legislation to nationalize them "no matter what the opposition."

An executive order putting the government in control of banks and other private financial institutions had been challenged in court, and Garcia said that he was suspending the decree to "avoid staining this democratic process with a shroud of illegality."

The decision did not change the government's intent to expropriate the private banking system, he said, and it will try to push appropriate legislation through Congress.

When Garcia announced the suspension at a rally of the ruling American Popular Revolutionary Alliance outside the presidential residence last night, he was interrupted by chants demanding that he stand firm on the intervention.

The government's about-face capped a week in which business lobbies and their political allies engineered a campaign against the takeover in the courts, Congress and the media.

Garcia, now entering his third year in office, has staked his reputation as an advocate of social change on the expropriation issue.

The government has lost three legal battles as courts issued injunctions against temporary public administration of 10 banks, six finance corporations and 17 insurance companies and the suspension of the institutions' boards of directors. Although the writs permit the private owners and managements to resume full control of the companies, the government's administrative teams have remained in place, defying the court orders.

The National Confederation of Private Business Institutions, the leading business lobby, has argued that expropriation will establish a state monopoly, politicize credit, encroach on private property, pave the way for other takeovers and be a step toward totalitarianism.

A high-ranking official said the government does not plan to nationalize other industries. "We're interested in the brains, not the arms and legs of the major economic groups," he said. He estimated the government's cost in taking over the 10 banks at $200 million.

Garcia said yesterday that opposition to the expropriation was coming from four major business groups that have steered credit in their own direction. Other business groups have not understood that the expropriation was designed to aid them, he said.

On Thursday, a bungled attempt to intimidate or assassinate Garcia's chief economic adviser, Daniel Carbonetto, increased political tensions. Two men with pistols disarmed Carbonetto's driver and bodyguard as they were coming out of his house in the middle-class residential district of Miraflores. The assailants apparently panicked and as they fled, the bodyguard fired at them with another, hidden weapon. Yesterday the police captured a suspect, who was hospitalized in critical condition with three bullet wounds.