Reagan Says Meese Should Stay on Job : Contends Situation at Justice Dept. Remains ‘Just Fine’

President Reagan said today that Edwin Meese III should stay on at the Justice Department and said the embattled attorney general has not offered to resign despite the legal controversy surrounding him.

Asked by reporters at the White House whether Meese should resign, Reagan said, “No.”

Asked whether Meese has offered to step down, Reagan said, “No.” Asked then whether the Justice Department is functioning well in light of the continuing controversy surrounding Meese, Reagan said, “Just fine.”

The President made the remarks to reporters following a brief speech to the American Legislative Exchange Council.

‘Continuing Confidence’

Earlier, Reagan’s chief of staff, Howard H. Baker Jr., told an interviewer:

“We don’t know what will happen next. All we know is that the attorney general is functioning and functioning well and that the President expressed his continuing confidence.”

Baker was referring to Reagan’s meeting with Meese on Wednesday, which sources said came minutes after one of two top departing Justice aides told the President that an aggressive prosecutor would seek Meese’s indictment.

The other aide, Deputy Atty. Gen. Arnold I. Burns, said today he and former criminal division chief William F. Weld had “a marvelous conversation” with Reagan on Wednesday. Burns said Reagan “was very candid.”

‘Very Frank Exchange’

“It was a very, very frank exchange of ideas that we had with him and he’s got to make his decision in his way in his own time and I’m confident that he will do it,” Burns said.

Burns, meeting with reporters on his last day on the job, said, “I have to confess to you that it is indeed a very sad day.”

During the 45-minute discussion called by the President, Burns told Reagan, Vice President George Bush, Baker and White House Counsel A. B. Culvahouse that “Meese’s behavior was hurting the Department of Justice,” an Administration source said.

Weld, meanwhile, “laid out the facts” in a hypothetical indictment he said he would have brought against Meese if he were the special prosecutor investigating the attorney general, said the source.

Ethics Standards Violated

Burns told Reagan that Meese had violated the standards of ethical conduct for executive branch employees spelled out in a 1965 executive order, and that if other Justice Department attorneys had acted as Meese has, “they would be bounced,” the source added.

The ethical standards, among other things, say that employees should avoid any action that could create the appearance of using public office for private gain, giving preferential treatment to any organization or person, or making a government decision outside official channels.

“The President was very attentive, listened to the story, got up and Meese came in” after Burns and Weld left, said the source.

The Washington Post today quoted a source, who also requested anonymity, as saying Reagan commented that he would not make any decision about Meese’s future until independent counsel James C. McKay finishes his report on the attorney general.