President Reagan approved air-dropping intelligence and recoilless rifles to help the Nicaraguan Contra rebels sink two ships carrying arms, Oliver North's Iran-Contra trial was told Thursday.

The disclosure came during testimony by former national security adviser Robert McFarlane, North's onetime boss at the National Security Council.North lawyer Brendan Sullivan questioned McFarlane about a "top secret" Oct. 3, 1985, memo from North to McFarlane in which North recommended the U.S. government air-drop intelligence to the Contras.

As McFarlane examined the memo on the witness stand, Sullivan said McFarlane's deputy, John Poin-dexter, approved the recommendation and that Poindexter added the words: "President approved."

The approval came at a time when the Boland Amendment prohibited any U.S. government agency involved in intelligence activities from using money to assist the Contras.

According to Sullivan's description of the memo, the steps North recommended were "not only extraordinary, but also expensive" and followed a meeting on the matter by the Restricted Agency Group. McFarlane described that as an interagency committee that made "recommendations on Nicaragua," with one deputy from each of several departments involved in intelligence.

The last page of North's memo describes "what to tell the president," said Sullivan, who read portions of it aloud.

One portion the lawyer read say that "we intend to air drop intelligence along with two recoiless rifles which will be used to sink one or both of the arms carriers."

McFarlane said the recoiless rifles are "designed to knock out a very hard target" such as a tank, a bunker or a plane on the ground."

"Or sink a ship as it says here," added Sullivan.