PITTSBURGH (AP) _ Wheeling-Pittsburgh Steel Corp. said Tuesday it would forfeit its modern rail mill to the federal agency that helped finance it, because the mill's losses were hampering its bankruptcy reorganization.

It would be the largest foreclosure ever by the Economic Development Administration, said agency spokesman John Mertz in Washington, D.C.

Wheeling-Pittsburgh owes the agency $88 million to $90 million, depending on how interest and late payment penalties are calculated, he said. The five- year-old Monessen rail mill represents $64 million of the total.

The announcement came as a blow to Monessen and neighboring areas of the Monongahela Valley south of Pittsburgh, where officials from 30 communities had joined members of Congress in asking EDA to make concessions to the company.

''The EDA has been firm in not backing down,'' said company spokesman Ray Johnson.

EDA possibly would sell the mill, Mertz said.

''Potential interest has been indicated,'' he said, declining further comment.

Without a new owner to operate the mill, the company's decision spells the end of steelmaking in a city where 3,500 workers once produced a variety of steel products.

About 190 workers were on the job at the Monessen plant this week, 120 of them at the mill, shaping semi-finished steel blooms into rails for the transportation market, Johnson said. About 930 others are laid off.

The company had hoped EDA would relinquish its claim on the rail mill as collateral, a concession other lenders demanded before financing a $40 million electric furnace at Monessen.

Compared to the high-output blast furnace that Wheeling-Pittsburgh closed this year, the electric furnace would better meet the rail mill's erratic need for semi-finished steel.

The rail mill will continue to operate for several months, filling the few orders it has, Johnson said.

With imported rail capturing more than a quarter of the depressed U.S. market, Wheeling-Pittsburgh has been losing $1 million to $1.5 million per month operating the Monessen plant, he said.

The EDA recently filed to foreclose on the mill, and Wheeling-Pittsburgh challenged the action. U.S. District Judge Maurice Cohill subsequently instructed Bankruptcy Judge Warren Bentz, who is presiding over the company's 20-month-old Chapter 11 case, to study the matter.

It was it certain whether Bentz's approval would be necessary before EDA could complete a foreclosure.

The company's announcement was a ''surprise and deep disappointment,'' said U.S. Sen. John Heinz, R-Pa., a member of the Congressional delegation trying to convince EDA to help the company.

Johnson said Wheeling-Pittsburgh had little choice in the matter.

''We're losing money on it every month. You can't very well emerge from bankruptcy with a losing proposition,'' he said. ''The market just doesn't justify our existence in the rail business.''

Further concessions from the United Steelworkers union, which has already granted wage and benefit cuts, ''wouldn't make any difference at this stage of the game,'' Johnson said.