August 5, 1983

Sandra Hillary, wearing a new wide-brimmed hat, said she had decided to end her retirement from acting to audition for a part in ''Cotton Club,'' a movie about the famous Harlem nightclub of the 1920's and 30's. She was among more than 4,600 people who showed up at St. Paul the Apostle Church on Ninth Avenue and 59th Street yesterday. Many wore costumes of the period for a chance to be looked over by Riccardo Bertoni and Esther Navarro, who were casting 5,000 small parts in the film.

STREET musicians will serenade on the sidewalks of Times Square. The bluegrass veteran Peter Stampfel will bring his new quintet, Bottlecaps, to Folk City. The Lone Star Cafe will be host to a doo-wop show. And David Amram, New York's ubiquitous ''man of all musics,'' and his quintet, will give two concerts celebrating the ethnic diversity of the city's musical culture. These are a few of the nearly two dozen events in the third New York Folk Festival, which begins today and runs for nine days in the clubs and parks and on the street corners of Manhattan and Brooklyn.

Secretary of State George P. Shultz said today that United States military forces exercising in Central America and the Caribbean were not seeking a confrontation and would withdraw if attacked. ''Our forces will defend themselves but they will withdraw,'' Mr. Shultz said in an appearance before the Senate Foreign Relations Committee. He added, ''We have no intent to engage anyone actively.'' It was the first time an Administration official had specified exactly how American forces would respond if attacked.

A Superior Court judge ruled today that the Educational Testing Service had acted fairly in invalidating the scores of four high school students whom it had suspected of cheating on their college entrance examinations. The judge, Richard S. Cohen of the Chancery Division here, emphasized that he was not ruling on the guilt or innocence of the four recent Millburn High School graduates. The students had sued seeking to prevent the testing service from invalidating their scores on the Scholastic Aptitude Test. The judge limited the issue to whether the testing service - the largest in the country - had just cause to question the four test scores and had acted fairly in voiding them.

Governor Cuomo yesterday began the campaign for a $1.25 billion transportation bond issue to ''rebuild New York'' amid signs of opposition and uncertainty from industry groups and public officials. In a ceremony overlooking a deteriorated section of the Franklin D. Roosevelt Drive in Manhattan, Mr. Cuomo signed legislation putting the question on the ballot in November and pledged to conduct a campaign to ''enlighten the people'' about crumbling roads and bridges. ''It is going to be a campaign where Republicans and Democrats together are going to be running against ignorance,'' he said. The bond issue would provide about $1 billion for highway projects, $170 million for mass transit and $75 million for ports and waterways. But so far, the Governor and Legislature have been unable to agree on a list of projects to be financed.