NEW YORK (AP) _ The University of Vermont failed at an auction Friday to keep a letter by Ethan Allen in the state.

The $38,000 winning bid for the 1787 letter by the Vermont patriot was made by a New York dealer for a private manuscript library in Santa Barbara, Calif. A 10 percent commission brought the price to $41,800 at Christie's.

Montreal antiquarian book dealer Helen Kahn said she bid just over $30,000 on the school's behalf but could not go higher.

''We were quite disappointed,'' she said. ''We thought it belonged in Vermont.''

Bart Auerbach, the New York dealer, said he bought the manuscript for the Karpeles Manuscript Library, a private institution owned by Dave Karpeles. The library is open to the public.

The letter had a pre-sale catalog estimate of $15,000 to $20,000.

The university raised as much as $15,000 from individual collectors and small foundations in Vermont to buy the letter, in which Allen discusses a possible trade agreement between independent Vermont and Canada.

Vermont became part of the United States in 1791. Allen had led the Greem Mountain Boys in a famous raid on Fort Ticonderoga during the American Revolution.

The letter shows a blending of Allen's personal and public goals, said Kevin Graffagnino, curator of the Vermont collection at the university.

Because Allen and his brother, Ira, owned 300,000 acres in Franklin and Chittenden counties, the Allens wanted to make sure Vermont could trade timber and goods freely to the north, he said.

Allen encouraged trade concessions between Vermont and Canada because his land would rise greatly in value, Graffagnino said, and also because that was what he thought was right for Vermont.

In the letter, Allen makes it clear that Vermont is an independent republic and thus is free to make its own international decisions.

''I belong to this republic, which is not connected with the United States of America,'' Allen wrote to Guy Carleton, Lord Dorchester, former British military leader and Britain's governor of Quebec at the time.

The British never did give the trade concessions and the Allens fell into debt with Montreal businessmen.

The university has the most extensive collection of Allen papers in the world and officials were eager to buy the document and have it on display for the state's bicentennial next year.

The university this year paid $13,000 for a letter Allen wrote in 1775.