Municipal market analysts and underwriters like the way New York City Mayor Rudolph W. Giuliani talks about solving the city's budget problems.

What they fear, however, is that the billions of dollars in budget gaps facing the city are too intractable for the mayor to handle, and that a weakening economy and city politics will blunt Giuliani's efforts to restore the city to fiscal health.

Problems began to emerge yesterday, following Giuliani's proposal on Tuesday to close a $1.1 billion gap in the city's $31.8 billion budget for fiscal 1995. Giuliani chose to close the gap largely through budget cuts and layoffs.

City council speaker Peter Vailone said that the council will likely oppose the plan, and he questioned whether the city should carry out such draconian measures. The council needs to approve the gap-closing plan.

"Just as we cannot tax our way out of fiscal problems, we cannot simply cut our way out," Vallone said in a prepared statement. "We must manage our way out of these difficulties."

Another problem for the mayor is the potential growth of the city's budget gap over the course of the fiscal year, which began July 1. City comptroller Alan G. Hevesi said the city's budget gap is about $300 million higher than Giuliani estimates. The city also faces billions of dollars of gaps in future years.

But even as Giuliani takes steps to reduce the city's long-term budget problems, he will face constant fiscal pressure. Budget holes will likely emerge during the current fiscal year, as Wall Street layoffs erode tax receipts, and potential revenues, such as the sale of the United Nation's Plaza Hotel, become difficult to collect.

"This is really a terrible situation," said Michael Brooks, a municipal credit analyst at Sanford C. Bernstein & Co. "The budget problem Could be as high as $1.4 billion, and Giuliani may find that at the last minute he cannot do what he wants."

Several bond traders who specialize in city debt said yesterday that they have begun to focus on the city's budget problems and will be counting on analysts' reports in the coming weeks to gauge the value of city debt.

"The budget coming into play is the main focus," a trader. of New York City bonds at a major New York firm said yesterday. "The key now is what the credit analysts say about the budget proposal."

"We haven't seen a whole lot going on outside of the general market malaise," another trader said. "Cities have backed up with everything else. The Street seems to like Giuliani's style. But that could change real fast if he can't get the right things done."

Brooks and other fiscal analysts say they need to wait for Giuliani's next budget plan, set for release in January, before making a definitive statement on the city's fiscal outlook.

Executives at Standard & Poor's Corp., which rates city debt A-minus with a negative outlook, also say they are focusing on the January budget plan, which will include Giuliani's second-quarter modification to the city's fiscal 1.995 budget, and his preliminary budget for fiscal 1996.

That's when, analysts say, the ability of Giuliani to carry out his planned 20,000-employee reduction in the city's head count during fiscal 1995, and other budget cutting proposals, will begin to show.

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