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In Mexico, the closer one is to the actual source of all the various handmade products, the lower the price. Certain items, as the colorful striped and chevron patterned serapes, are indigenous to the entire country. They are marvelous bargains often costing less than $10 and useful as foot warmers and blankets as well as clothing.

San Miguel de Allende, about 180 miles north of Mexico City, specializes in selling tin, silver, and ceramic objects. But the best buys of all are the hand-woven fabrics sold either by the meter or made up into serapes, robozas, or capes.

Many of these fabrics with such distinctive colors and patterns are loomed from handcarded yarns woven by prisoners in the craft workrooms of the penitentiary at San Miguel de Allende. Profits from the sales are channeled back to the prison welfare board.

Fabrics generally come in two weights and widths, with the lighter and narrower yardage costing about $1 per meter. Heavier- weight cloth for a handwoven bedspread costs about $10.

San Miguel de Allende has shops galore. Boutiques specializing in local artisan crafts, furniture, and home decorations are often hidden in the flowering patios behind heavy wooden gates facing onto the narrow cobblestone sidewalks.Most of the better shops are located within two or three blocks of the Zocalo, the principal park in the center of town. One gloriously jumbled establishment sells everything from hand-embroidered shirts to handmade chandeliers.

Just two blocks up the Correo from the Zocalo and directly opposite the post office, one finds the shop El Pagaso, named for Pegasus, the winged horse of mythology, and inspired by the San Miguel riding school run by Harold Black.

Lois Black is the owner and director of El Pegaso, which specializes in locally made high fashions, leather goods, equestrian articles, and silver jewelry. The shop keeps her busy in spite of three assistants, but Mrs. Black has still found time to write eight published books including the best known "Mexican Mural," a comprehensive social study of her adopted country.

The serape, poncho type capes, and other styles can be found everywhere from the open air market stalls crammed between pyramids or oranges, limes, and giant stalks of sugar cane. But El Pegaso's exclusivity in in its "Capa de Accion" or performing cape, a giant circle made of lightweight handwoven fabric edged all around with thick yarn fringe. The cape, to be worn seven different ways, was designed last year by Helen Kirtland, another American who migrated to Mexico for holidays and became a permanent resident.

The idea is tremendously simple and like many simplified effects, ultrapractical and cram full of chic. Two braid-banded armhole slits are cut out slightly to one side of the center. Actually, for a taller woman, the circle becomes oblong or slightly egg shaped, allowing for extra length when the cape is worn extended to the floor for formal occasions. With a few twists and a pin, it can be transformed into an evening gown. The cape can be worn doubled over in three different ways and also wrapped round the waist and pinned at one side as a skirt.

This chameleonlike garment, which costs about $50, is most effective and hangs to best advantage on El Pegaso's special handwoven fabrics, but there are similar effects elsewhere in coarser materials. The look is inexpensive, fun, and surely one of the most versatile.

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