The Food and Drug Administration can regulate tobacco products but cannot impose its far-reaching advertising and promotion restrictions on the tobacco industry, a federal district judge ruled yesterday.

The mixed ruling, by U.S. District Judge William L. Osteen Sr. in Greensboro, N.C., was a blow to the tobacco industry, which had vehemently fought the FDA's plans to assert broad jurisdiction over its products for the first time.

President Clinton called the decision "on balance, a great victory" and said that the Justice Department would appeal to reinstate the advertising and promotional restrictions. In an interview, Vice President Gore said the decision "validates President Clinton's efforts to protect children from this deadly and highly addictive product."

The decision was hailed by anti-smoking advocates. Matthew L. Myers of the Campaign for Tobacco-Free Kids called the ruling "the most devastating loss the tobacco industry has suffered in any court in the United States." "It is stunning. It is amazing," said David A. Kessler, the former FDA commissioner who led the initiative to have the nicotine in tobacco regulated as a drug and the products themselves as "drug delivery devices." He called the decision a "landmark."

The tobacco industry saw the decision differently and focused on the importance of the judge's denial of advertising authority. "We are very pleased the court ruled that the advertising and promotion regulations are invalid and struck them down," said Charles A. Blixt, general counsel for R.J. Reynolds Tobacco Co. In a joint statement, tobacco industry firms pledged to continue to fight any FDA jurisdiction over its products.

The decision could increase pressure on the tobacco industry to negotiate a comprehensive settlement of the many legal attacks it faces from state officials, product liability attorneys and federal regulators.

The news caused tobacco stocks to dive. The shares of Philip Morris Cos., the world's biggest tobacco company and the manufacturer of Marlboro, fell $2.37, or 5.7 percent yesterday, closing at $39.25. RJR Nabisco Holdings Corp., which markets Camel, fell $2.75 or 8.7 percent, to $28.75.

Osteen's decision leaves in effect the first stage of the FDA's tobacco regulation plan, which includes a national ban on tobacco sales to anyone younger than 18, mandatory photo identification checks of everyone under age 27 buying cigarettes, restrictions on vending machines and bans on self-service displays and promotional cigarette giveaways.

But the decision blocks the agency's plans to institute restrictions on advertising and promotional activities, the most controversial aspect of the FDA action. The agency had planned to prohibit all tobacco billboards within 1,000 feet of schools and playgrounds and to restrict ads in magazines with a substantial underage readership to a black-and-white text format. Promotional items such as logo-bearing caps and tote bags also would have been forbidden. Regulations that would have gone into effect next year would have prohibited name-brand sponsorship of sporting events like car races and rodeos.

Gary Black, a tobacco industry analyst with Sanford C. Bernstein and Co., said that without the advertising restrictions the FDA plan would not be effective. "The FDA has been given a gun and no bullet," he said.

The ruling means that tobacco companies can continue their sponsorship of sporting events, including auto racing. R.J. Reynolds, through its Winston brand, is the primary sponsor of NASCAR, the stock car circuit that has realized explosive growth this decade. Reynolds's rival Philip Morris has a significant involvement with the IndyCar series. On the IndyCar and NASCAR series, several cars are sponsored by tobacco-related companies.

"Advertising won a major victory today," said Dan Jaffe, executive vice president of the Association of National Advertisers, which had sued the agency. "The FDA just doesn't have regulatory authority over tobacco advertising, period." Jaffe called the decision a "very important step for the protection of First Amendment rights for advertisers in this country."

The judge did not rule directly on the First Amendment issues. Instead, he said that the agency did not have the authority under the provision of the Food, Drug and Cosmetics Act that it used to justify the ad ban. That provision, which covers "restricted medical devices," allows the agency to regulate a product's sale or "other conditions." Osteen wrote that " other conditions' cannot be so broadly construed as to encompass conditions on advertising and promotion."

An expert in food and drug law found the judge's 65-page opinion "inconsistent." Lewis A. Grossman of American University Law School said that the opinion gives the agency great latitude to regulate cigarettes and smokeless tobacco products as medical devices, but suddenly becomes more strict in its scrutiny of the single clause that the agency said allowed it to regulate advertising. "That's not some kind of bizarre or nonsensical interpretation of that clause," Grossman said. "It's interesting to me that he hung it on that."

The agency's decision to call the products medical devices but to give regulatory authority to its drug division is at least as questionable, Grossman said. But, he said, following that logical path to find otherwise could have raised huge problems for both the industry and the agency. Had Osteen ruled that the agency could not regulate tobacco products as devices, then they would have to be regulated as drugs -- with the strict requirement that the manufacturer prove the products' safety. "It would have been doomsday for the FDA's entire partway approach' to regulating the product," Grossman said.

Gore pledged that the administration would get the "narrow point" Osteen used to block the advertising restrictions overturned on appeal. Even if those rules cannot be restored, however, the finding of jurisdiction leaves the FDA with a number of other regulatory options. It would still have the power to require that tobacco products be sold by prescription, or could even ban the products if the industry cannot prove that they are safe. "Once it's a drug, once it's a device, there are an array of tools that can be used," Kessler said.

Pressure on advertising could also come from the Federal Trade Commission, which recently reopened an investigation into whether R.J. Reynolds's "Joe Camel" advertising campaign targets young people. Advertising spokesman Jaffe said that his group does not oppose FTC regulation, since "The FTC, we believe, has expertise. That's what they do, is regulate advertising."

Anti-tobacco activists had expressed fears that the court chosen by the industry to hear the case could be biased toward cigarette makers, because North Carolina is a tobacco state and the judge had lobbied Washington for tobacco growers in the 1970s. The extent of the FDA's win thus sends a strong message to the industry, said Myers of the Campaign for Tobacco-Free Kids.

"This particular judge was literally selected by the tobacco industry out of all of the judges in the United States. If the tobacco industry can't convince this judge that it shouldn't be regulated as a drug, it has virtually no chance on appeal," Myers said.

The decision "sets the tobacco industry on a path to be regulated. . . . The authority of the FDA to oversee this industry is far more significant than any single component of the specific rules it issued last August," Myers said. "Jurisdiction is what this was all about."

Kessler was exuberant about the judgment. "It's a victory for the nation, for the public health," Kessler said.

"A small group of very committed people at the agency took on the impossible," Kessler said. "The president of the United States supported them, and a federal district judge in North Carolina in very large measure agreed. . . .

"It will change forever the way tobacco products are viewed," Kessler said. Staff writer Saundra Torry and special correspondent Josh Barr contributed to this report CAPTION: MIXED RESULTS In the first legal test of the FDA's attempt to regulate tobacco as a drug delivery device, a federal judge ruled that the agency can control sales and labeling of cigarettes. At the same time, the judge ruled against FDA restrictions on advertising and promotion. Here is how the ruling affects the FDA's regulations: RULES UPHELD Photo IDs: Buyers under age 27 must produce photo identification. Vending machines: Cigarette vending machines limited to facilities where children are prohibited, such as bars. Singles: No free samples, single cigarette sales or packages of fewer than 20 cigarettes. STRUCK DOWN Billboards and signs: Limited to black-and-white text only, except in adult-only facilities. Banned within 1,000 feet of schools and play-grounds. Print ads: Black-and-white text only ads in publications with high youth readership. Giveaways: No product giveaways with brand names or logos. Sponsorship: Entertainment or sporting events sponsored only in the corporate name, not the brand name. CAPTION: Charles A. Blixt, general counsel for R.J. Reynolds Tobacco Co., speaks to reporters at courthouse steps after the decision in Greensboro, N.C.