Thanks to the National Endowment for the Arts, now you really can't believe everything you read in the papers.

By the end of June, 10 major newspapers with a combined circulation of 5.2 million will begin printing short stories provided free by the Syndicated Fiction Project, a joint effort of the NEA literature program and PEN American Center--the New York office of the international writers' organization. The fiction project will supply eight stories a month to participating papers, each of which has agreed to carry a minimum of two.

The project, intended to counter the declining market for fiction by returning short stories to the pages of newspapers, was conceived by Mary MacArthur, assistant director of the NEA literary program, and approved last fall. Solicitations to newspapers and authors began in December. The decision to include PEN was made, fiction project coordinator Donna Phillips said yesterday, "because the literature program couldn't administer the project--it didn't have the staffing."

PEN was more than willing. With the proliferation of video entertainment, the domination of bookstore stock by best sellers and the virtual disappearance of fiction from mass-circulation magazines, "we fear that a really broad readership for fiction is shrinking in this country," American Center executive director Karen Kennerly said yesterday, "and this is one way of restoring it."

To avoid an unwieldy volume of manuscripts, submissions were restricted to previous winners of NEA fellowships and members of the PEN American Center in New York. About 3,000 writers applied. Their work was evaluated by a panel of four judges--authors Russell Baker, Ann Beattie, Robert Stone and Kurt Vonnegut--who chose a total of 96 stories by 90 authors for the first year of the project.

Most of the winners--from 33 states and the District of Columbia--are largely unknown. A few are surprisingly familiar: Joyce Carol Oates, Alice Adams, Bel "Up the Down Staircase" Kaufman and Jose Yglesias, among others. Washington-area authors include Richard Harteis and poets Myra Sklarew and Elisavietta Ritchie.

Winning writers will receive $500 for each story selected by the judges, and an additional $50 every time one of their stories appears in a newspaper. The NEA will hold the copyright to all material for the duration of the project, and retain anthology rights for a possible book.

In 1977, the NEA had studied the feasibility of encouraging newspapers to revive the practice of printing fiction, and concluded that the administrative cost would be prohibitive. But when the idea was resurrected last year, "it was fairly easy to drum up the papers," Phillips said. "We had over 80 inquiries--the response was astonishing. But one of the ways that we sold the project to them was that it would be limited to 10 publications." Participating are the Arizona Republic, Chicago Tribune, The Hartford Courant, The Kansas City Star, The Miami Herald, the Minneapolis Star and Tribune, Newsday, The Oregonian, the Rocky Mountain News and the San Francisco Chronicle. Most will publish the fiction in their Sunday magazines, and each has agreed not to edit the stories for length.

During the late 19th century, it was commonplace for the daily press to carry works of fiction. The New York Herald Tribune was still running stories regularly as late as the 1950s. One of the earliest contributors was Edgar Allan Poe, whose work appeared in a number of periodicals, including the New York Sun, edited by the legendary Charles Dana. The practice flourished in the 1890s, and over the years stories by such authors as Mark Twain, O'Henry, Stephen Crane, F. Scott Fitzgerald and John Steinbeck appeared in newspapers. The irony of the Syndicated Fiction Project, Kennerly said, is that "fiction first left the papers because national magazines of large circulation such as Collier's and The Saturday Evening Post were picking up the stories." So the return to dailies "is a restorative process as well."