ALBUQUERQUE, N.M. (AP) _ A judge today sharply reduced a $2.7 million punitive damage award against McDonald's Corp. for an elderly woman who was scalded by hot coffee she spilled on her lap.

At the same time, State District Judge Robert Scott denied a motion by attorneys for McDonald's asking him to grant a new trial or, at least, throw out the punitive damages altogether. Both sides said they would appeal.

Last month, a jury awarded nearly $2.9 million in punitive and compensatory damages to Stella Liebeck, 81. She suffered third-degree burns on her legs, groin and buttocks in Feb. 27, 1992, when she placed a cup of coffee between her legs to steady it while prying the lid off at a McDonald's driveup window.

Scott let stand the compensatory damages but cut the $2.7 million punitive award to $480,000. Compensatory damages cover a person's actual losses, while punitive damages are meant to punish and deter wrongdoing.

Scott noted he had told jurors that any punitive damages must be ''reasonably related to the injury.''

The judge said he arrived at $480,000 figure for punitive damages by tripling the $160,000 compensatory award given Liebeck. He said $480,000 was appropriate for the ''willful, wanton, reckless and what the court finds was callous'' behavior on the part of McDonald's.

McDonald's attorney Bruce Hall said he would appeal today's ruling, saying the jury's verdict was unjust.

Liebeck's attorney, Reed Morgan, said he was surprised by the ruling, but had no other comment except to say he would appeal the reduction in damages. Liebeck, who was in court today, declined to comment.

Hall argued at today's hearing that the plaintiffs did not prove that hot coffee is a defective product, and were therefore not entitled to damages. He said ordinary people appreciate that coffee ordered from a restaurant is hot and that if it is mishandled it can burn someone.

Hall also argued the plaintiffs had not been able to establish what would be a safe temperature for coffee.

Morgan argued that McDonald's was returning to the court as a ''big industry saying, 'Leave us alone, ignore what this jury ... did in New Mexico.'''

Testimony at trial indicated McDonald's coffee is standardized at 180 to 190 degrees. The lawsuit contended Liebeck's coffee was 165 to 170 degrees when it spilled. Coffee brewed at home is generally 135 to 140 degrees.

While the jurors had awarded damages to Liebeck, they had found her to be partially responsible for the accident. They reduced her compensatory damages award by $40,000 to reflect that finding.