Public Service Electric & Gas Co. sold $600 million of first and refunding mortgage bonds through competitive bidding yesterday.

"We were very pleased," Gregory McLaughlin, a PSE&G official said of the two-part deal. "[There was] very aggressive bidding."

Bidding was particularly aggressive for the seven-year piece, helped apparently by the lack of a seven-year Treasury note, he said. The Treasury decided to eliminate the seven-year note and its final sale took place last month.

"J.P. Morgan beat out Salomon by 3/10 of a basis point," McLaughlin said, adding that the figure was approximate.

The 11-year tranche consisted of $300 million of 6.50% bonds due May 1, 2004. The noncallable bonds were reoffered to the public at 99.285 to yield 6.592% or 53 basis points more than the yield on 10-year Treasuries.

A group led by First Boston Corp. won competitive bidding to underwrite the offering. Citicorp Securities Markets Inc.; Morgan Stanley & Co.; A.G.Edwards & Sons Inc.; UBS Securities Inc.; Yamaichi International (America) Inc.; and Pryor, McClendon, Counts & Co. assisted First Boston.

The First Boston group purchased the 6.50% bonds from PSE&G at a price of 98.829, resulting in an annual cost of the money to the company of 6.65%.

The seven-year piece consisted of $300 million 6% first and refunding mortgage bonds due May 1, 2000. The noncallable bonds were reoffered to investors at a price of 98.875 to yield 6.201% or 48 basis points over comparable Treasuries. J.P. Morgan Securities was alone in its winning bid.

J.P. Morgan purchased the 6% bonds from PSE&G at a price of 98.65, making PSE&G's annual cost of the money 6.24%.

Moody's rates the offering A2. while both Standard & Poor's Corp and Duff & Phelps Credit Rating Co. rate it single A.

PSE&G plans to use a portion of the net proceeds to redeem four series of higher cost mortgage bonds on July 1, according a company release. Remaining proceeds will be used to pay of a maturing bond issue and construction costs.

Redeeming the four issues will cut the utility's annual interest charges by about $9.5 million.

Including those four series, PSE&G will have refunded a total of $1.7 billion bonds in 1992 and 1993, trimming its fixed cost of debt by about 81 basis points to 8.02%.

The four issues being redeemed are:

--$60 million of its 8.45% Series G bonds due Sept. 1, 2006 at a price of 103.79% of the principal amount plus interest.

--$123.8 million, after application of the sinking fund redemption, of 8.25% Series H bonds due June 1, 2007 at 103,82% of the principal amount plus interest.

--$59.9 million of the 8.125% Series I bonds due Sept. 1, 2007 at 103.93% of principal plus interest.

--$192 million of 8.75% Series V bonds due April 1, 2016 at 105.68% of principal plus interest.

Elsewhere, Chemical Banking Corp. yesterday said it won approval from the Federal Reserve's Board of Governors to underwrite and deal in all types of debt securities in the United States through its wholly owned subsidiary, Chemical Securities

"This basically enables us to do public offerings of corporate, high yield and sovereign offerings in the United States," a Chemical spokeswoman said, "We view it as a natural extension of our business line."

In the United States, Chemical is already active in underwriting and dealing of U.S. government securities, municipal securities, asset-and mortgage-backed securities, commercial paper and bank-eligible securities, the Chemical release says.

It also acts as agent on all types of private placement deals. Chemical also underwrites and distributes debt and other securities through several of its overseas operations.

The new powers cover corporate debt, sovereign debt, certain debt securities that are convertible into equity, and securities issued by a trust or other vehicles secured by or representing interests in debt obligations.

"We are extremely pleased to receive increased underwriting powers," John F. McGillicuddy, Chemical Banking Corp.'s chairman and chief executive officer said in a release "We believe our expansion into this business will enable the new Chemical to become and even more vibrant competitor in the global capital markets."

Asked whether the new powers were particularly aimed at the new high-yield group Chemical has assembled, the spokeswoman replied:

"That's a piece of it."

Chemical recently hired three people to build its new high yield group, she said. The bank tapped Lawrence McCarthy, formerly the number two trader at Grantchester Securities Inc., as managing director and head high-yield trader. He joined Chemical on May 3. McCarthy reports to John O'Connor, a managing director and co-head of private placements. O'Connor will continue his private placement duties in addition to heading the combined high-yield trading, sales and research operations.

The other two new hires are on the organization side and will report to the other co-head of private placements, Sal Bommarito.

Bill Finnegan, who starts May 24, was formerly a member of Donaldson, Lufkin & Jenrette Securities Corp.'s high yield capital markets group. He will be a managing director at Chemical Securities.

Peter Schmidt-Fellner, formerly a vice president in Citicorp Securities Markets' private placement group, has also joined as a managing director. He started May 17.

Chemical Securities is an Securities and Exchange Commission registered broker-dealer and a member of the National Association of Securities Dealers, Inc.

In secondary trading yesterday, high-yield bonds ended unchanged overall in light volume. However, Stone Container Corp. bonds gained about a point overall amid rumors of asset sales and that Stone's banks were "playing ball," one trader said.

In the high-grade sector, spread on the Province of Ontario's bonds widened by three to four basis points ahead of a budget announcement scheduled for last night. Banks and utilities issues maintained their spreads to U.S. Treasury securities, while finance paper was two to three basis points tighter in spots.

New issues

Interstate Power issued $94 million of 7.625% first mortgage bonds due 2023. Nonrefundable for 10 years, the bonds were priced at 98.126 to yield 7.87% or 80 basis points over comparable Treasuries. Moody's rates the offering Al, while Standard & Poor's rates it A-plus. A group led by Salomon Brothers Inc. won competitive bidding to underwrite the offering.

The Empire District Electric Co. issued $23 million of 5.7% first mortgage bonds due 1998 at par. The noncallable bonds were priced to yield 44 basis points above comparable Treasuries. Moody's rates the offering Al, while Standard & Poor's rates it single A. Salomon Brothers was sole managed of the offering.

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