U.S. Trade Representative Carla Hills all but said Wednesday that Japan will not be designated as a country practicing broadly restrictive trade policies.

In testifying before the Senate Finance Committee, Mrs. Hills said that naming Japan under the Super 301 provision of the 1988 Trade Act would not further U.S. objectives in opening the Japanese market.Meanwhile, the United States and Japan reached agreement in Tokyo on opening the Japanese market to imports of processed wood products, and the U.S. Senate Tuesday approved a bill giving states the right to limit log exports from state lands. (Related stories, Page 5A.)

President Bush must decide by Monday whether to designate any countries - and their unfair practices - under the Super 301 provision. His cabinet- level Economic Policy Council will meet to consider the matter today and then make its recommendations to the president.

But Mrs. Hills is the leading U.S. trade policy official, and her recommendation that Japan not be named almost certainly means that country will not be designated.

Administration officials confirmed that Japan will not be on the list but remained tight-lipped about whether any other countries may be named. One official said, however, that not naming Japan "makes it difficult but not impossible" to place other countries on the priority list. A decision from President Bush on the list is expected late Thursday or Friday.

Mrs. Hills indicated concern that the progress made in a host of trade negotiations with Japan - from supercomputers and satellites to telecommunications and structural economic issues - may be reversed if the Bush administration were to name Japan to the Super 301 list, as it did in 1989.

To underscore her contention that Super 301 is not the proper mechanism for opening the Japanese market, Mrs. Hills said none of the barriers listed in the annual U.S. National Trade Estimate Report warrants a designation under that provision.

"I can't find a place with Japan (in the report) where the Super 301 is best tool to use to achieve our objectives," she said.

The 1988 Trade Act states that practices and priorities designated under Super 301 must come from the list of trade barriers outlined in the report.

She pleaded with Sen. John Danforth, R-Mo. - one of Japan's sharpest congressional critics - to "give me a little bit of leeway in choosing the tool" with which to press for open Japanese markets.

The committee's reactions to Mrs. Hills' statements were mixed, but Sens. Danforth; Max Baucus, D-Mont.; John Heinz, R-Pa.; Donald Riegle, D-Mich.; and the committee's chairman, Lloyd Bentsen, D-Texas, all urged her to place Japan on the list again this year.

Sen. Bentsen repeated his assertion that failure to name any countries under Super 301 might lead Congress to withhold support for proposed trade agreements with Eastern European countries and for any agreement emerging from the ongoing Uruguay Round of multilateral trade talks under the General Agreement on Tariffs and Trade.

GATT is the Geneva-based body that governs most world trade in merchandise.

But Sens. Bob Packwood, R-Ore., and Bill Bradley, D-N.J., both told Mrs.

Hills that any action that might derail the GATT talks should be avoided.

"We should not jeopardize that goal (of gaining a new GATT agreement) by personal pique against one or two countries," said Sen. Packwood.

When the administration named Japan, along with Brazil and India, most of the 97 GATT member nations expressed outrage. Strong sentiment has been expressed that such a move this year would cast a pall over the negotiations, scheduled to conclude in December.

"At the verge of the final stage of negotiations, it's not a very accommodating ambience to be confronted with a long list of possible actions or retaliation. I do hope within the limits of discretion the administration has available, that the authorities will implement in a wise manner," said Frans Andriessen, the European Community's commissioner for external relations.

Mrs. Hills constantly stressed that the Super 301 deadline for designating unfair foreign trace practices conflicts with a successful conclusion to the Uruguay Round - which she has stated as her principal policy objective in 1990.