A federal appeals court ruling indefinitely blocking the partial merger of Detroit's two daily newspapers is the most encouraging sign yet for halting the deal, the main opposition group said.

The U.S. Circuit Court of Appeals' ruling Monday prevents the Detroit Free Press and The Detroit News from proceeding with a joint operating agreement until the court rules on the challenge brought by Michigan Citizens for an Independent Press.The court also set an Oct. 28 hearing on the challenge to the merger and agreed to expedite the case.

John F. Kelly, the Michigan state senator who leads the organization comprised of advertisers and readers opposed to the merger, said he was extremely encouraged by the ruling.

"We jumped all the procedural hoops," Kelly said Monday. "We finally got to a forum that is willing to look at the merits of the case."

To qualify for the indefinite halt of the merger, opponents had to prove they have a "substantial likelihood of success" on the merits of their claim. In granting the order, the court said opponents of the merger "have presented a serious legal question."

Free Press publisher David Lawrence characterized the court order as "simply another development in a very long, now almost 30-month-old process."

"What pleases me . . . is the quite expedited schedule," he said. "That means everyone will get an earlier answer."

The Free Press, which has lost $100 million since 1980, is owned by Knight-Ridder Inc. Gannett Co. bought the News in 1986 before the dailies asked the Justice Department to approve the joint operating agreement.

Louis Weil, publisher of the News, referred questions about the appellate court ruling to Sheila Gibbons, a spokeswoman for Gannett, who could not be reached for comment.

Frank Hawkins, a Knight-Ridder executive in Miami, was unavailable.

Kelly's group disagrees with former Attorney General Edwin Meese III, who ruled that the newspapers qualify for an antitrust exemption under the Newspaper Preservation Act of 1970.

They argue that the exemption, which would create the largest joint operating agreement in the country, is unwarranted because the two dailies are losing money only because they have engaged in a 9-year-old price-cutting war to put each other out of business.

Knight-Ridder and Gannett are the nation's two largest newspaper publishing companies.

The two papers have a combined weekday circulation of 1.2 million. The merger of the two dailies' advertising, circulation and production departments would create one of the nation's largest local newspaper publishing companies.