Back on the 1930s, rumor began filtering down from the timberlands of Maine through the mountains of Vermont and into upstate New York that a new four-legged creature had take up residence in New England.

"Werewolves," reported some. Others called them "coy dogs", and "brush wolves." Biologists and maturalists, awed by the sudden appearance of a new breed of wild canine, dubbed them the "eastern coyote."

Farmers just called them "trouble."

Today, the nation's newest canine is sweeping through the Northeast, spreading fear among livestock farmers at a time when the sheep industry in this part of the country is poised for a comeback.

But the coyote has a found a powerful ally in environmentalists, who have turned the eastern coyote into the focus of the classic battle between conservationists and industry.

The eastern coyote problem, authorities said, has not yet reached the proportions of predator troubles in the West. But that doesn't assuage the producers and breeders who see a connection between growing destruction of their flocks and the expansion of the coyote population each year with no natural or governmental controls.

There are at least 10,000 coyotes in New England according to Jay Lorenz, a biologist at Unity College in Maine. The coyote population is growing rapidly, he said, because it has no predator in the wilds except man.

Over the past several decades, fish and wildlife managers have tracked the eastern coyote, which many biologists content is a relative of the western coyote but not identical to it as it traveled north through Canada from Michigan into Maine and northern New York, and as far south as Maryland. The coyote population in the East, authorities said, has not yet peaked, though they are most numerous in northern New England.

"Each night they serenade us from different sides of the farm," said Thippen Sanborn, a sheep grower in Morrill, Maine. "Each day we'd come out and find another lamb dead!"

"We hear 'em on the range out toward Hawley at night, howlin' . . . it's a terrible sound," said George Smith, after finding a dead calf on the family farm in the western Massachusetts town of Buckland. "We've got to clean them out; don't care what the law is."

In Massachusetts, the law is clearly on the side of the coyote, banning the shooting of it. Other states in the region have hunting seasons on the coyote, but farmers say even that is too little too late.

"The problem just keeps 'getting worse each year," said Cornelia Swayze, president of the Vermont Sheepbreeders Association. "If we don't do something soon to hold them back we won't be able to have sheep in New England pretty soon."

The slightly larger relative of the western coyote - it weighs about 35 to 50 pounds and looks like a German Shepherd - has been greeted with an arsenal of bullets, taps poison and guard dogs.

But the highly adaptable and cunning animal has continued to avert man's best attempts at destroying it. Livestock farmers, in many cases, have succumbed to coexisting with the creature, buying special guard dogs and electric fences to keep the coyote away from their stock.

Still, they claim, the coyote population must be controlled.

Conservationists and environmentalists, however, claim there is another sid to the story, and the debate is often heated and emotional.

William Bossert, a professor of applied sciense at Harvard University who researched the eastern coyote said, "A lot of farmers would love to say the coyotes are impacting on the economy so they can collect bounty money for killing them."

He described the animal as "very alert and affectionate; they make wonderful pets except that they howl." In fact, he said, the eastern coyote has moved into many northern towns and cities, inhabiting garbage dumps and killing small nocturnal animals.

"They have formed a symbiotic relationship; they fit with us perfectly ecologically," he said. "They are coming to the cities for food and company - they really do like people."

Raymon Coppinger, a biologist at Hampshire College, Mass, said complaints of the coyote's predation are exaggerated and that dogs kill more livestock than coyotes do. "Usually autopsies [of the coyote] show the animals stalk nothing more challenging than the family garbage pail."

Conservationist Hope Ryden, author of God's Dogs," which argues against destruction of the coyote, lashed out at sheep farmers, calling them "backwards people who say the coyote is responsible so, "let's kill them."

Sheepmen have exaggerated the number of animals they have lost, she maintained, to encourage the federal government to kill the coyote and provide free sheepherding services for them.

"I've no objection to killing a marauder but once you get the government involved they don't just stop there, they go after all of them like a plague," she said. "Once you get the government involved it becomes a body count."

"That's baloney," countered Tony, Turner, who raises expensive breeding sheep in Shorehara, Vt., and who says he was nearly wiped out by coyotes "That woman lives in New York, what the hell does she know?"

"You know the minute you start talking about getting rid of a few of the coyotes you get these bleeding hearts crawling out of the woodwork talking about the balance of nature," he said. "Well, they forget we never had the coyote here; we managed without them before, we can manage without them now.

"Ecology is all very well and good but when they start destroying my livelihood I get a little hot under the collar," Turner said.

The sheep industry in New England, a major source of wool during the Industrial Revolution, went through a rapdi and general decline after 1830, when the textile mills began to move south and farmers pushed west in search of better soil, a milder climate and more expansive grazing pastures.

In recent years, just as the Coyote appeared in the area, and diversification of New England agriculture began to take hold, the sheep industry began to boom, reaching a high of 34,000 breeding sheep in 1968. The sheep population in New England is now pegged at 28,600, a major decline attributed by the industry to predators - domestic dogs and coyotes.

Nationally, coyotes were responsible for the destruction last year of 65 million lamb dinners and one and a half-million potential wool suit, claimed a Wyoming woolgrowers' report.

"The predator is the reason for the major decline in the sheep industry," said Dr. Clair Terrill, a staff scientist with the U.S. Department of Agriculture, who noted that 125 million sheep and lambs out of a total national population of about 13 million were killed by predators last year.

"The coyote population is getting so high that it's just a matter of time before they are howling in Boston and Washington," Terrill said.

He contended the numbers of coyotes have got out of control because environmentalists wield more power than sheepgrowers.

"But if the country would rather have coyotes than sheep, then that's what they'll have," he said. "I'm prejudiced in favor of the sheep."