Philippine Guerrillas Set Terms for Freeing Hostages : Terrorism: Release of a U.S. Peace Corps worker and a Japanese citizen held by Communist rebels could come this week.

Communist rebels said Saturday that they will release a kidnaped Peace Corps volunteer and a Japanese citizen to representatives of the International Red Cross “in the immediate future.”

In a letter to retired Roman Catholic Bishop Antonio Fortich, who has been negotiating for the hostages’ freedom, the rebels outlined the arrangements for the release of Timothy Swanson, 26, of Cheyenne, Wyo., and Fumio Mizuno, 36, of Japan.

Swanson was kidnaped June 13. His abduction was discovered by U.S. officials implementing an order from Washington to pull out 261 Peace Corps workers in the Philippines after rebels threatened to kill or kidnap the volunteers.

Mizuno, training director of the Tokyo-based Organization for Industrial, Spiritual and Cultural Advancement, was abducted May 29.

Both hostages were seized from their homes on the island of Negros, 300 miles south of Manila.

The letter said the two are “safe and sound.” It did not set a date or place for their release, but negotiators said they expect them to be freed sometime this week.

The letter also said the release should be carried out during a three-day cease-fire and should be witnessed by the Red Cross, the wives of the two hostages, doctors, human rights lawyers and members of the news media. Government soldiers must not be present, it said.

The letter, signed by a rebel spokesman who identified himself as Celso Magsilang, was written on stationery marked with the logo of the Communist New People’s Army. It was delivered to Fortich on Saturday afternoon by an NPA emissary.

The rebels strongly denied statements by armed forces chief Gen. Renato de Villa that they had asked for a $217,000 ransom, and they warned the military against “sabotaging” the release.

They demanded that the letter be aired over the radio for two days as a signal that their demands had been accepted.

At least eight Americans have been killed since April, 1989, in slayings blamed on the 19,000-strong NPA. The guerrillas have vowed to kill more Americans unless Washington dismantles its military bases in the Philippines.