Indian Market; A HOLIDAY IN SANTA FE

August in Santa Fe is an Easterner's dream. No dank rivers and layers of pollution and humidity. No daily battle for good ozone readings and plain air to breathe. It's the month I am happy to rent rooms or house-sit just to be in the cooler, drier climate of the West.

I'm hardly the only one to find Santa Fe - and northern New Mexico - a life or mind-saving oasis at this time of year. The Santa Fe Opera and Santa Fe Chamber Music Festival are still in full swing, the nearby pueblos have feast days for San Lorenzo or Santa Clara. The pueblo of Santo Domingo performs a Corn Dance with hundreds of participants.

To the north and to the east, you can opt for Angel Fire's Hot Air Balloon Rallye, a rodeo in Las Vegas, or cliff climbs at Bandelier National Monument. But the highlight of the month is Sante Fe's Annual Indian Market.

This is no sleepy marketing of crafts beneath shady cottonwood trees, nor the routine lineup of artisans at the Palace of the Governors. The Annual Indian Market is a veritable avalanche of hundreds of craftsmen from as many as 40 Southwestern tribes, an onslaught well matched by the flood of buyers.

It's a two-day affair - Aug. 21 and 22 this year - supplemented by museum auctions, gallery openings, and party celebrations. The market is Santa Fe's annual rite to honor the creativity and traditions of native Americans of the Southwest and to celebrate the astonishing variety and skill of peoples whose crafts, early in this century, were almost extinct.

On the night before the market, I station myself at the La Fonda Hotel. I purchase my program and use it for my cover. On Friday night, the hotel is a nonstop parade. I feel conspicuously ordinary. To right and to left are clusters of Yankees and Texans in squaw skirts and concha belts. A blue-haired matron sinking beneath layers of silver and turquoise jewelry may drift by on the arm of a man whose white suit and whiter mustache seem relics from the Old South. New cowboys sporting wide-brim hats plus boots and pearl-buttoned shirts stride beside cowgirls in freshly starched jeans.

If I can, I'll position myself close to where the Indian craftspeople are entering, delivering their work for the night's competitive judging. Thecraftsmen and women are of an altogether different sort, the difference, surely, between Pueblo or Navajo Indian and what Santa Feans call ''Anglos'' - the non-Indian and non-Hispanic sorts from both Santa Fe and beyond. But more pertinent is the difference between artist and buyer.

The crowd milling about La Fonda, eating enchiladas in the hotel's La Plazuela restaurant or browsing in the excellent newsstand, is in a holiday mood. The market, fob outlanders, is society, aesthetics, and wheeling and dealing.

The craftspeople, too, think of profit and loss, for the Indian Market is a prime opportunity for sales and contacts. But the gentle simplicity of a noted potter in her faded prin dress, the shy gathering of three generations to register their best kachinas or heishi necklaces, the lean, stylish young ones whose eyes gleam shrewdly and watchfully: All seem a tableau apart from the slick calculating of their Anglo observers.

The Indian Market brings Santa Fe to a halt. By noon on Friday, the plaza is shut down to cars. Preparations begin for erecting more than 350 booths, for participants, information, and for selling Indian fry bread and Navajo tacos - fried beans, lettuce, tomato on fry bread.

Early Saturday, beneath a sea of bright-colored awnings, the craftsmen line up their selection of goods, whether pottery, baskets, jewelry, sculpture, or paintings. Dancers, perhaps come from Zuni to the west, dance in the patio of the Palace of the Governors, and artists may demonstrate the techniques of potterymaking or basket weaving peculiar to the Hopi mesas or the Rio Grande pueblos.

On Saturday night there's a feast at La Fonda, a pueblo-style meal of red chili with beef, posole (hominy) with pork, bread baked in the round ovens typical of the area, plus Indian-style fresh, fruit pies.

The grand scale of today's Annual Indian Market is a tribute to 60 years of Santa Fe's dedication to the revitalization of crafts almost finished by mass market goods. Though Indian ''curios'' and ''relics'' were very much in vogue from the 1880s on, the ever-present tourist was more interested in garish gewgaws than in authenticity or tradition. By 1917, however, a combination of archaeological excavations on the Pajarito Plateau near San Ildefonso Pueblo and the founding of the Museum of New Mexico in 1909 laid the groundwork for dramatic change. The excavations aroused interest among Indians and Anglos in the fine pottery of earlier centuries, and the Museum of New Mexico and its ambitious staff gradually stimulated a revival.

At first, pottery was definitely the key, and two enterprising women - a Russian emigree and her companion from Richmond, Ind. - set about systematically encouraging first-class work from pueblo woman potters and - in many cases - their husband collaborators.

These women, Rose Dougan and Vera von Blumenthal, put up the prize money for the first Southwest Indian Fair in 1922, the forerunner of today's Annual Indian Market. In 1933 the New Mexico Association on Indian Affairs (formed to battle the infamous anti-Indian Bursum Bill in Congress) merged with the Southwest Indian Fair and first steps were taken to transform the fair concept into a market concept instead.

Today, the sponsoring organization calls itself the Southwest Association on Indian Affairs. What began with pottery has extended to all kinds of crafts, and competition divisions make room for everything from ''innovations'' to the traditional.

When the market is on, hotel reservations are a must. Though you'll pay well for the pleasure, hotels like the Inn at Loretto (Best Western), the Inn of the Governors, the Hilton Inn, and, of course, La Fonda, are all within walking distance of the town's plaza.Book ahead, shine your boots, and go west this year. The Annual Indian Market is an education - and a good time. Practical details:

For information, or for reservations for the Pueblo Indian Feast, write SWAIA , Post Office Box 1964, Santa Fe, NM 87501. Telephone (505) 983-5220. The Feast costs $10 per person, 400 person limit. Included with your ticket is the chance to buy special selections of Indian craft items. At the market, the price range is from $2 to $5,000.

Hotels: Book immediately. Many hotels already have waiting lists for that weekend. Albuquerque, Los Alamos, and Espannola are all within easy driving distance. If you like Bed and Breakfasts, try Preston House, 106 Faithway, Santa Fe NM 87501, (505) 982-3465. For additional B&B listings, call Chamber of Commerce, (505) 983-7317. From June 15 to September 15, the Santa Fe Convention and Visitors Bureau operates a Lodging Assistance Hotline (505) 988-4252 (4 p.m. to 10 p.m.).