An Indian in her cupboard. Best-selling children's author Lynn Reid Banks spins a superb story

A LITTLE boy jumping in a magic trunk and tumbling back in time? That was one of the ideas author Lynn Reid Banks considered in working on the sequel to her hugely popular ``The Indian in the Cupboard.'' The boy in question, Omri, had already had the startling, wonderful experience of seeing a toy Indian come alive when he placed it inside a nondescript old wooden cupboard and turned the key. The Indian, Little Bear - miniature, but very much a real person - came to Omri from the Iroquois nation of 300 years ago.

Now what if Omri could go back to that time?

The thought struck not the author herself, but one of the thousands of young readers who've devoured her book. It was dutifully forwarded to the writer. Ms. Banks frequently gets letters suggesting plot lines or asking questions, particularly from young Americans. ``They tend to write much more to authors,'' she notes, comparing them with the youth of her native Britain.

These avid young consumers of her fiction ``pulled a sequel out of me. I found myself cooking their ideas,'' says the writer, who was dressed in an orangeish-pink outfit with rawhide fringe and matching moccasins for a recent interview in Boston.

The idea of Omri's going back in time intrigued her, but it ``had to be thought through.'' In the end, it became a riveting, though not large, part of the sequel, ``The Return of the Indian,'' published last October.

Since then the sequel has gone into its second printing, with 190,000 copies in circulation. The original ``Indian'' book has had 16 printings, with over half a million copies produced. Both books are published by Avon Books and cost $2.95 apiece.

What's the attraction of Banks's books to young readers?

```The Indian in the Cupboard' came along when we were hungry for good fantasy,'' she says. And her readers ``do love the miniatures, the idea of them coming to life.'' She pulls from a pocket the little chief figure that had belonged to her own son, Omri, now a grown man. An earlier, oral version of the Indian story had been a favorite of his.

In fact, Banks's book fitted into a genre that can loosely be called ``little people'' books, according to Amy Cohn, an editor with the Horn Book Magazine, a Boston-based publication that monitors children's literature. ``Children are generally fascinated with the imaginative possibilities of this, because it springs from their own play,'' she explains.

Beyond that, the books are ``a really good read,'' says Ms. Cohn. The reason for that, she says, is Banks's superb storytelling talents. In its review, Horn Book ``starred'' the sequel, indicating it was a book every library should offer, Cohn points out.

As a children's author (though she has done adult books as well) and a mother of three, Banks has strong views on the importance of fantasy. She's aghast that children are sometimes steered away from purely imaginative writing.

She recalls once visiting a primary school in Rhode Island to talk to the students in a writing class. One little boy asked, ``Should we write about real life or fantasy?''

Banks went into ``a spiel,'' as she puts it, about keeping your feet on the ground, ``but by all means write fantasy!'' At that, the kids broke into applause, and the teachers looked embarrassed. The mandate, it seems, had been ``real life.''

``But you can't stultify their imaginations, or they'll lose it,'' says the author, referring to the vividness of youthful imaginings.

Why shouldn't children's early writing efforts have the same creative freedom that their artistic efforts have? she asks. ``We should allow them to write in English the way they're allowed to build in the art department.

``I compare it to an underground river of creativity and imagination. The teacher's job is to poke her finger through and find it,'' she sums up, speaking as a former schoolteacher.

Banks's own creative stream is surging toward a likely third volume in the ``Indian'' series. Letters are still coming in from readers, chock-full of ideas and suggestions.

She mentions a group of letters from children in Springfield, Mass. They were concerned about unanswered questions in ``The Return of the Indian.'' What happens when Omri's parents come home? What about the burn he got when he traveled back to the Iroquois village, under attack by another tribe? Where had his baby sitter gone?

Clearly, they want the story to continue. And Lynn Reid Banks is likely to respond.