Washington Capitals defenseman Larry Murphy, coming off his most productive season, yesterday signed a contract that will keep him with the team for five more years, according to his agent, Ron Salcer.

"They've shown me that they want me to play here," Murphy said from his Alexandria home yesterday. "Today, it sounds like I'm going to be here for a while. It was fortunate we were able to work it out before the summer was over. Now it's behind us, and I can look to playing next season."

Murphy, 26, signed the contract, which could pay him $200,000 a year, including incentives, according to sources, at a party for season-ticket holders in Greenbelt last night. He had become a free agent July 1, but any team signing him would have had to compensate the Capitals with as many as two draft picks. A Capitals spokesman confirmed it is a multiyear contract, but would reveal no other details.

In June, the Capitals lost goalie Bob Mason, whom they had been trying to re-sign, and did not receive any compensation when he signed with the Chicago Blackhawks. They traded Alan Haworth and Gaetan Duchesne to Quebec for center Dale Hunter and goalie Clint Malarchuk.

Capitals General Manager David Poile said the loss of these key players exerted no pressure on the Capitals in their negotiations with Murphy. "They were unrelated. You have to treat every player differently," he said.

"The fact that he had his best season certainly helped him in negotiations."

Murphy scored 23 goals and had 60 assists for 83 points last season, the highest point total in his eight-year career. He finished third behind Ray Bourque and Mark Howe in voting for the Norris Trophy, awarded to the best defenseman in the National Hockey League.

"We were negotiating based on last season, and I think because of the season I had, I moved up in the ranks," Murphy said. "I feel very comfortable with the contract. It pays me according to the standards of the other players in the league at my level. That's why we signed it."

Murphy said he looked at several options, including playing in Europe, but said those were not his top choices.

"My main objective was to sign with Washington," he said. "We had to look at other avenues for the sake of my best interests. It's important to find out what sort of interest other teams have."

While he wouldn't name any teams, Salcer said he and Murphy were talking with four NHL teams and a European team.

Salcer said Murphy's annual salary with the European team would have been more than what he'll make with the Capitals, but the contract was only for one year with a possible one-year extension. Salcer said the European offer helped speed the negotiating process.

"We had a very substantial offer, and I think that kind of got the negotiating going," Salcer said. "He was ready to go, though he didn't want to."

Jack Button, the Capitals' director of player personnel and recruitment, said the negotiating process was a typical one, but also said such talks could go on all summer.

"In contract negotiations, it's going to be go and go and go," he said. "Then all of a sudden it's going to break through, and when it does, it might only take two minutes. But if it doesn't break through, you don't know when it might come around."

Murphy said his two weeks of free agency weren't nerve-wracking. "It's an interesting situation," he said. "Now {when you become a free agent}, you're open game. It gives you a good indication of what other teams think of you."

Murphy, who played three years with the Los Angeles Kings before being traded to Washington during the 1983-84 season, said he had ambiguous feelings about playing out his option year last season.

"It can be difficult if you have a bad game and you think, 'My career is over,' " he said. "It was a struggle all year long to try and keep a positive attitude that if things go well, your bargaining power will improve."