The uncle of 12-year-old Mark Settles, who was gunned down two weeks ago, was charged yesterday with second-degree murder in the slaying after D.C. police said that he told them he had argued with Mark about the boy's "drug activity on the streets."

John Elijah Settles, 24, reportedly told police yesterday that he shot his nephew during a fight in which he was counseling Mark to get away from illegal drug transactions.

Police immediately raised questions yesterday about John Settles' claim that he had been counseling Mark and pointed to Settles' admitted involvement with drugs. Settles, who police say told them he was on PCP the night Mark was shot, was arrested yesterday at St. Elizabeths Hospital, where he had checked in last weekend for treatment for drug abuse.

While police question Settles' account of the argument, they say they believe that Mark was a "holder" on a street corner, a term used by drug dealers to describe the person designated to give drugs to the buyer after the buyer has paid the seller.

"We have evidence from several sources that Mark was involved in the drug market, primarily as a holder," said Capt. Larry D.

Soulsby, commander of the police department's homicide division.

Mark's mother, Eleanora Settles, said late last night she refused to believe that her brother killed Mark. Nor did she believe police claims that Mark was involved with drug dealing.

"The police are lying about what they said he told them," she said at one point.

She said she wants to talk to her brother, face to face, and let him tell her what he knows. "I don't believe he said that. I will have to hear it myself . . . . "I don't know what to think."

Police said their position is based on interviews in the family's Southeast neighborhood, but they did not provide more specific evidence except to say that Mark was allegedly "holding" PCP and crack, a cocaine derivative.

"Oh Jesus, no," said Velma McCarter, the director of the youth choir at St. Judah Spiritual Baptist Church on Anacostia Road NE, of which Mark was a member.

McCarter and others who knew Mark said that the police are describing someone they never knew.

"I just don't see it," said McCarter. "He would always smile like I had just given him a bag full of candy . . . . He was really enthused about the choir."

Shirley McGalliaria, the principal at Weatherless Elementary School, where Mark was a sixth grader and a member of the basketball team, found the police description of Mark's drug role hard to believe.

"I would have to look at that with a bit of suspicion," McGalliaria said.

Karen Settles, one of Mark's aunts, previously has denied that her nephew was involved with drugs. "That's not true," she said. "I'm his aunt. I know. I've been his confidant, and that's not true."

Still, the aunt had said that Mark's mother was concerned about her son's ability to deal with peer pressure. Because Mark was a member of the police-sponsored Boy's Club, Mark's mother recently contacted a police officer to talk to the boy.

"Mark had left a couple of times and she couldn't find him for a while, so she was trying to scare him," Karen Settles said. "She had someone talk to him about the peer pressure that he was up against."

Mark was home from school on Dec. 17 with an eye infection when his mother, Eleanora Settles, left the house for a short time and walked down the street to visit a relative. When she returned, she said, she found Mark's body sprawled in a pool of blood on the kitchen floor. His German shepherd dog, Old Cyrus, was lying next to him, also shot dead.

The day that Mark was shot, police sources said that his uncle, who lived in the Settles' Stoddert Terrace home and was apparently the only adult there at the time of the shooting, was not a suspect. He had been found lying in the hallway between Mark and the dog with a superficial gunshot wound in his left leg, according to a police affidavit.

But the investigation began to focus on him shortly afterward, according to police. When John Settles was questioned by police on Dec. 31, he told them that at the time of the shooting, he possessed a gun that he had bought earlier in the week, according to a police affidavit.

Settles told police then that he and Mark had been in the house, along with Mark's infant brother, John, during the shooting. Settles heard a knock at the door and told Mark to answer it, he told police, according to the affidavit.

Seconds later, Settles told police, he got his gun from a bedroom. As he moved into the hallway toward Mark, Settles claimed, he collapsed after being shot in the leg. Settles told police that he did not see the person who shot him, the affidavit said.

Police said that ballistics evidence indicates that Settles' gunshot wound was self-inflicted.

During what police called an "extensive investigation," detectives relied heavily on circumstantial and forensic evidence in the case, including ballistics tests, because there were no witnesses. The ballistics tests showed that the bullets recovered from Mark's body and the dog were fired from the .22- caliber handgun found near Settles, authorities say.

Yesterday, after police arrested Settles at St. Elizabeths, he changed his account of the shooting, authorities said.

Settles told police that he had been advising Mark to stay away from drug activity on the streets. When they began to argue, a fight broke out and the boy and his uncle were shot, Soulsby said Settles claimed.

Settles told police that he hit Mark and the boy pulled a gun on him, police sources said.

But police interviewed a friend of Settles who claimed to be with him when Settles bought a gun, three days before the shooting. Settles picked up the gun from the friend on the morning before Mark was shot, according to the police affidavit.

Mark's mother could not be reached for comment yesterday. A woman who answered the door at her home would not comment on the case.

Outside, remnants of a floral arangement from Mark's Dec. 23 funeral stood in the yard.