Washington's reputation as a sophisticated wine city received a setback this week when Christie's East announced in New York that it would not be holding an auction of fine and rare wines here Oct. 16. Instead the sale will be held in Chicago on that date.

The news came the day after a hearing of the District's Alcohol Beverage Control Board at which representatives of two wholesale houses and a large retailer said auctions would hurt the established trade. The hearing had been requested by the local Retail Liquor Dealers' Association.

There is no provision in the District's regulations for auctions of alcoholic beverages. Last year Christie's got board approval for an October auction at the Madison Hotel, where this year's was scheduled, after demonstrating that the District would lose no tax revenue. The wines were warehoused in New York and all payments were made through Christie's in New York.

Last year there was no opposition from the local trade. In contrast, retailers with inventories of older wines welcomed the auction. Thus the objection from the Retail Liquor Dealers' Association came as a surprise to Christie's. "We had informed the board of this second auction as a matter of courtesy. The only difference between this year's auction and last year's is that the wines are being warehoused in New Jersey," said Ted Kligman, Christie's attorney.

The board's ruling on Wednesday's hearing could take up to three weeks to be prepared, which would have put the issue in doubt well into October. "Even if the board rules favorably, as we expect in view of last year's decision, we have decided to move the auction to Chicago," said Jackie Quillen of Christie's East. "We cannot expect our customers who travel from as far afield as Alaska and Europe to change their plans at the last minute. We are disappointed."

So are several Washington retailers. Not everyone was opposed to the auction. Referring to Christie's customers, Doug Burdette of Eagle Wine & Liquor, said: "It's crazy to chase these people out of town. They come with one purpose only: to buy wine. Everyone can't have the winning bid, so they'll go shopping anyway." On Oct. 31, 1981, the day of last year's auction, Eagle had its biggest single day of business in the store's history, according to Burdette.

The Alcohol Beverage Control Board here plans to take a closer look at the ambiguous position of auctions, according to one official.