Chinese leaders were preparing Tuesday to end martial law in Tiananmen Square, the cradle of the crushed pro-democracy movement, and possibly lift the restrictions elsewhere in the capital, sources said.

The end of the 7-month-old emergency would be mainly symbolic because most troops already have been withdrawn from city streets. It would not mean greater freedom of dissent, because most activities banned under martial law, such as anti-government demonstrations and speeches, are illegal under other laws.However, Communist authorities hope it will reassure foreign governments and the World Bank that stability has been restored and that loans should be restored. They were frozen in June after troops cleared the city center of pro-democracy protesters, killing hundreds of unarmed civilians.

It also may be directed in particular at the United States, where it would enable President Bush to tell critics that his softening of sanctions against China had a positive effect. A Western diplomat in Hong Kong linked it to national security adviser Brent Scowcroft's December visit to Beijing.

When Premier Li Peng announced martial law in central Beijing on May 20 for the first time in the 40-year history of the People's Republic, he said it was necessary to stem massive pro-democracy protests led by students. However, the protests were not halted until the army came into the city shooting on June 3-4, bent on dispersing students camped out in Tiananmen, a massize square that is the symbolic seat of power in China.

Martial law forbids marches, strikes, class boycotts, public speeches, distributing pamphlets, spreading rumors and other "destructive activity." It also gives soldiers and police authority to take any measures necessary to maintain order.

Chinese sources said the government canceled plans to lift martial law in December after the popular uprising in Romania ousted hard-line Communist leader Nicolae Ceausescu.