A Brazilian official yesterday dismissed as "offensive" suggestions that Brazil is breaching United Nations sanctions and supplying military expertise and equipment to Iraq.

Since the late 1970s, Brazil has been Iraq's major trading partner, supplying food, technical support, automobiles and, most importantly, weapons in exchange for oil, which Brazil needs to run its industrial machine, by far the largest in South America.

But Jose Carlos Fonseca, the Brazilian Embassy's spokesman in Washington, said no military equipment had been sent to Iraq since 1987 because Iraq had fallen so far behind in its bills. "Iraq is a very bad client," he said.

Brazil's arms makers had been important to Iraq and vice versa. At the height of the trading in early 1987, during the Iran-Iraq war, the aerospace firm Avibras, for example, sold Iraq rockets worth $322 million, the single biggest export shipment by a private Brazilian firm.

According to Fonseca, Avibras is still owed $40 million and another Brazilian company, Engesa -- which supplied Iraq with light tanks -- is owed $90 million. Both firms are now failing, in part because of uncollected Iraqi debts, Fonseca said.

Fonseca said "all relationships" had been broken with Iraq in compliance with the U.N. declaration following Iraq's Aug. 2 invasion of Kuwait.

"We consider it offensive that Brazil is considered a country that is supposed to be sending arms to Iraq," he added.

The embassy spokesman was reacting to a report in yesterday's New York Times that the State Department had decided to allow the export to Brazil of rocket components that experts believed could be used by Brazilian engineers and Iraq to develop a long-range ballistic missile.

The components, seven steel casings, are the outer shells of a three-stage rocket called the VLS that Brazil's air force hopes to launch in 1993 as part of a commercial satellite project.

Fonseca agreed that the rocket could be used for military purposes if required, but denied it would be. He said it would be used to launch a commercial satellite to monitor weather patterns.

There are reportedly 350 Brazilians still in Iraq. According to one report, 23 of them are scientists working with the Iraqi government on military projects who have refused to leave despite a Brazilian government request that they do so.

Fonseca said the components were "absolutely not" intended for diversion to Iraq. He said Brazil was being cast as "the bad guy" because of its "previously" close links with Iraq.

Brazil shipped the components to Chicago earlier this year where Lindberg Engineering heat-treated them to harden them for use in a space launch.

The casings were impounded in late July while the State Department reviewed the export license, but were allowed to leave two weeks ago.