BEIJING, SEPT. 30 -- China, in apparent violation of the U.N. trade embargo against Iraq, has sold Baghdad large quantities of a chemical used in the manufacture of nuclear weapons and missile fuel, a British newspaper reported today.

The Independent, in a story from London, said a subsidiary of North China Industries Corp., one of China's largest defense conglomerates, agreed to supply about seven tons of lithium hydride to Baghdad for about $1.5 million in a secret deal 10 days ago. The Independent said it had some documents relating to the sale.

The Chinese Foreign Ministry today denied that China had violated the embargo and called the Independent's report "totally groundless."

An unidentified spokesman quoted by the official New China News Agency said: "China is a responsible country. We have been holding a very serious attitude toward the implementation of Resolution 661," which was passed by the Security Council on Aug. 6 and bars U.N. members from trading with Iraq.

The newspaper report said the Iraqis most likely want the chemical for fuel for ballistic missiles. It said Iraqi President Saddam Hussein has previously tried to obtain lithium hydride, but that the three Western manufacturers of the chemical are suspicious of large orders.

China, a permanent member of the U.N. Security Council, has aligned itself with the West on sanctions against Iraq, imposed after Iraqi troops invaded Kuwait on Aug. 2. China is said to hope its cooperation with the West in the Persian Gulf crisis will lead to improved relations with the United States and other Western countries and to the lifting of sanctions imposed after the Chinese army crackdown on demonstrators for democracy last year.

But ever since the U.N. embargo against Iraq was approved, rumors have circulated in Beijing about possible violations by the Chinese, Western diplomats said. Officials from the U.S. Embassy here have met several times with Chinese officials "about the question of enforcement," one U.S. diplomat said, including a meeting last week.

That meeting included discussion about U.S. concern over North China Industries Corp.'s activity, diplomats said. But a U.S. official declined to say whether the reported sale of lithium hydride was discussed. "We talked to the Chinese about three or four things concerning their overall posture on sanctions" against Iraq, said the official, who declined to elaborate.

"We have no evidence that China has broken the embargo," he said.

The newspaper report said it was possible that China's central authorities were not aware of the deal. In the past, Chinese officials have said they have little control over the activities of China's numerous arms companies.

According to the newspaper, lithium hydride has few civil uses, although it can be used in pharmaceuticals and in the computer industry in minute quantities. Its military applications include manufacture of hydrogen and atomic bombs, and as a precursor for lithium aluminum hydride, an extremely powerful reducing agent that has potential for use in production of nerve gas.