October 22, 1981

President Reagan sought to clarify American nuclear policy today by asserting that any suggestion that the United States was considering fighting a nuclear war with the Soviet Union at European expense was ''an outright deception.'' His statement, issued as he flew to Cancun, Mexico, for a conference of developing and industrialized nations, was specifically designed to counter a wave of speculation in Western Europe that the United States was insensitive to the possibility of a nuclear war erupting in Europe, State Department officials said today. They said European concerns and protests had intensified as the result of what an official said were ''inflated accounts'' of Mr. Reagan's own impromptu remarks last weekend on the possibility of limiting a nuclear war to Europe. NATO Plans to Counter Protests In Gleneagles, Scotland, the Secretary General of the North Atlantic Treaty Alliance said the alliance planned ''a very strong public relations effort'' to counter the protests. (Page A7.)

AT first glance, Jim McWilliams's small, lower Manhattan duplex with its bright palette and comfortably mismatched selection of chairs appears to be spontaneously designed: an almost haphazard combination of textures and patterns. But a closer look shows that the apartment is the result of a meticulously executed plan - one in which Mr. McWilliams wanted to illustrate the possibilities of using paper ''without,'' as he explained, ''being boring about it.'' Mr. McWilliams, a vice president and creative director for a Massachusetts-based paper manufacturing company, set out to prove his point with a vengeance; the end product is an interior that is both imaginative and provocative. Papyrus plants are displayed in a basket, huge strips of paper hang from the walls, rolls of paper in the corner masquerade as a palm tree, paper on a wood column doubles as a lamp shade, and sheets of paper stacked and topped with glass serve as a coffee table. And, in one of the most appealing applications, there are tiny square bits of paper strewn over the floor - scattered like confetti after a summer wedding.

A House banking subcommittee rejected today an Administration-supported bill that would abolish state interestrate ceilings on consumer loans, but backers of the measure are still pressing for its adoption by the Senate, where chances are rated more favorable. The panel's 8-to-1 vote against the bill marked the first substantive Congressional consideration of the fiercely controversial issue. It would pre-empt state usury ceilings on consumer loans. Similarly, the Federal Government removed limits last year on home mortgages.

The International Business Machines Corporation yesterday introduced its most powerful computer, a machine that will be up to 40 percent faster than its current top model. The new computer, along with pricing changes announced yesterday, was viewed by analysts as an attempt to shore up lagging earnings and to make I.B.M. more competitive against the Amdahl Corporation and other companies that make computers that are essentially interchangeable with those made by I.B.M. The new machine, the 3081 model group K, is the second version of the 3081 introduced last November. While able to process information at a speed 40 percent faster than the first model, the new one will cost only 16 percent more: $4.3 million compared with $3.7 million. 'Strengthens Competitiveness' ''It strengthens I.B.M.'s competitiveness at the high end,'' said Thomas J. Crotty, an analyst with the Gartner Group. Analysts also noted that the new 3081, along with pricing changes for other large computers, would encourage customers to buy the machines rather than rent them, which could result in better shortterm earnings for I.B.M. The company's income has suffered recently from unfavorable currency translations and other factors.

New York City's Department of Health, hard hit in recent years by budget cuts, is trying to regain its reputation as the finest municipal health department in the country, according to city officials. ''It's essentially a forgotten agency of the city,'' said Barry Ensminger, counsel to the City Council President, Carol Bellamy, reflecting the view of most observers. ''It's in real bad shape. The first-rate people are no longer there.'' According to Deputy Mayor Robert F. Wagner Jr., ''It's no longer in the pre-eminent position.'' He cited as reasons not only budget cuts, but also the growth of the city's Health and Hospitals Corporation, a shift of powers to the state and the difficulty of attracting first-rate people because salaries were not competitive with those in the private sector.