WASHINGTON (AP) _ A New Jersey company is pressing the Treasury Department to release a multimillion-dollar down payment on custom-built furnaces for Iraq that the Pentagon halted on the eve of the Persian Gulf War.

Consarc Corp. of Rancocas, N.J., today is asking U.S. District Judge Stanley Sporkin to order the release of $6.4 million in the Bank of New York secured by a letter of credit as partial payment for the furnaces.

The hearing comes as Democrats demand an investigation into what they say was the Bush administration's policy of currying favor with Iraqi President Saddam Hussein prior to his August 1990 invasion of Kuwait by providing him with goods and technology.

The company says it was encouraged by the Commerce Department to sell the furnaces to Iraq but was left holding the bag after the administration blocked the shipment right before the invasion. The Pentagon said the furnaces could be used for nuclear weapons production, and Treasury froze the $6.4 million.

Consarc is challenging the way the Treasury Department has administered frozen Iraqi assets and honored government-backed agriculture loans to Iraq.

Treasury says its Office of Foreign Assets Control has frozen for eventual distribution to U.S. claimants all assets in which Iraq has even an indirect interest.

But Consarc attorneys contend that more than $1 billion was paid out ''beginning as early as September 1990 to various favored creditors of Iraq, including the Gulf International Bank.''

Sen. Patrick Leahy, D-Vt., chairman of the Senate Agriculture Committee, has questioned agricultural loan payments to Gulf International Bank and other banks partly owned by Iraq and Libya.

Tax dollars were used to repay loans on which Iraq defaulted.

Another inconsistency in policy, Consarc says, is that the United States released about $100 million in frozen Iraqi assets to commercial U.S. banks late in 1990 and in 1991, and it would like to transfer $200 million in frozen funds to United Nations programs.

Sporkin ruled on Aug. 7, 1991, that Consarc was entitled to $64.1 million in damages because Iraq lied when it said the furnaces would be used to cast titanium limbs for victims of its war with Iran. At the time, he said the $6.4 million partial payment would remain blocked, but Consarc could return to his court if it could show the U.S. government acted in an ''arbitrary and capricious'' manner by refusing to release the funds.

In June 1992, he reaffirmed Consarc's right to the $6.4 million and prohibited the Treasury Department from transferring the money to the United Nations.