DETROIT (AP) _ A recommendation that U.S. Attorney General Edwin Meese III turn down a partial merger of two newspapers drew praise from unions, but Knight-Ridder Inc.'s chairman said the company could be forced to close or sell its Detroit Free Press.

Knight-Ridder Chairman Alvah Chapman Jr. said he hopes Meese will ignore the recommendation issued Wednesday in Washington by U.S. Justice Department Administrative Law Judge Morton Needelman.

Needelman, who held public hearings in Detroit in August, concluded that the Free Press and The Detroit News did not qualify for permission they requested in May 1986 to merge circulation, advertising and other business operations at the newspapers. The papers wanted to maintain separate news and editorial departments.

Employee unions at the two newspapers Wednesday hailed the recommendation, saying fully independent papers would mean more jobs.

Don Kummer, administrative officer for the Newspaper Guild of Detroit, said his group estimates a merger would cost the jobs of about one-third of the approximately 2,500 News employees and 2,100 Free Press employees.

''We hope that this will end an era in Detroit when papers are virtually given away and we will get back into true competition,'' Kummer said at a news conference.

Officials at Gannett Co. Inc., which owns the News, declined comment.

The papers said they lost a combined $142 million from 1981 through the first half of 1987 and that the Free Press was in danger of failing.

But Needelman said Free Press losses weren't shown to be irreversible, citing among other things an August query to Knight-Ridder about possible sale of the paper ''to the publisher of the Chicago Sun-Times.''

His decision also followed review of briefs from the newspapers, the Justice Department's antitrust division and challengers including six newspaper employee unions and Detroit Mayor Coleman Young.

All sides have 45 days to respond, but Meese has no deadline for a decision.

Under the Newspaper Preservation Act of 1970, the attorney general can approve a limited antitrust exemption if he finds one paper is in danger of failing and a joint operating agreement would ensure survival of independent editorial voices.

Chapman said in a statement a JOA still is ''the only way to preserve jobs and to provide for the continuation of two independent editorial voices serving the people of Detroit and the state of Michigan.

''We still fully expect a positive ruling on our application from the attorney general.''

Later, in a news conference at the Free Press, he refused to discuss possible denial of a JOA. ''Our plans go to approval,'' Chapman said.

Chapman recalled testifying before Needelman that he would recommend the paper be closed ''or sold if it could be sold. And that would be my recommendation.''

Chapman wouldn't say whether the newspapers would appeal a denial to federal court, though he said, ''We will use every resource available to Knight-Ridder, and I am sure Gannett will do the same, to secure approval.''

In citing the August query about possible sale of the Free Press, Needelman didn't identify Chicago Sun-Times Publisher Robert Page by name and said evidence didn't indicate whether a serious offer was made. Two calls to Page weren't returned.

Chapman wouldn't discuss the offer.

The News has circulation of 678,720 daily and 839,319 on Sundays and the Free Press' circulation is 639,720 daily and 724,342 on Sundays, according to the Audit Bureau of Circulation.