It used to be a cheerful place, Esteli, a small mountain town that would swell on weekends as people drove up from Managua, the soggy capital. It was a place to cool off and eat long Sunday lunches and, situated in the heart of a farming district, it was prosperous.

With much of its population of 40,000 gone, hundreds killed and thousands fled, it is a ghost town now, its streets lined with charred skeletons of cement and brick. Nicaraguans now refer to it as "our Guernica" drawing the parallel between Franco's bombing of the Spanish town that shocked the world 40 years ago and Nicaraguan President Anastasio Somoza's recent shelling and strafing of Esteli from land and air.

There is little left of the town center now that government workers have spent a month clearing things the caved-in roofs, the entire city blocks that were smashed. Slowly the shattered water mains and the torn electric wiring and being repaired but there are few people around to use them. The streets are empty and most of the undamaged houses are boarded up.

The local Red Cross setimates that nearly 30,000 of the 40,000 people left, and every day before dark hundreds go to outlying villages to sleep. "People escape at night as though they think the town was cursed," a Red Cross worker said.

Of the five Nicaraguan cities that rose up in September, propelled by the Sandinista guerrillas against the long-time Somoza dictatorship, Esteli took the most punishment.

The town held out for three weeks, then fell after nearly a week of air attacks. People fled in all directions, to Managua, the capital and to neighboring Honduras and-people say in strict privacy-many of the men followed the guerrillas when they withdrew into the hills.

"One old man who lost his wife took his five sons and joined the guerrillas," a long-time resident said last week.

Most of the damage was caused by the government, although the rebels attacked the properties of some 50 Cuban exile families here, most of whom became wealthy merchants under the auspices of their friend, President Somoza.

"Many of them were Cuban American and they went to Miami," said a local lawyer. "I doubt they will ever come back here."