WASHINGTON( AP) - Judge Sandra D. O'Connor of the Arizona Court of Appeals is on a narrow list of candidates to succeed Justice Potter Stewart on the U.S. Supreme Court. It could not be learned how many other names were on the narrow list. But one administration official who declined to be named said that a decision by President Reagan on his choice was expected soon. This source said that Attorney General William French Smith had developed an initial list of 20 to 25 names from many more who had been suggested. One Justice Department source said the administration had been given the names of about 50 different people by various congressmen, lawyers, interest groups and others. The administration source said that the attorney general culled the names to 20 to 25 by reviewing the background of the individuals suggested, reading their opinions and writings and discussing them with acquaintances and colleagues. Smith and Reagan then narrowed the list and are well along in the selection process, this source said. Those who are under serious consideration have been interviewed or are about to be interviewed by the attorney general or other top Justice Department officials. In today's editions, the Washington Post said Mrs. O'Connor has emerged as a leading candidate. "She hasn't been chosen yet, but she's close," the newspaper quoted one unnamed Reagan administration source as saying. The Post said Mrs. O'Connor, 51, was interviewed for the vacancy by an administration official and