When police Sgt. S. D. Mastin found the dead beaver along the banks of the Rappahannock River near here tonight, the animal's fur was coated with kerosene. The smell in the air was so bad it made "my eyes run," Mastin said.

A short distance away, Mastin said he watched dumbfounded as couples clustered around picnic baskets enjoying a leisurely Sunday along the river.

The picknickers were ignoring the smell "or they've got the worst case of sinus I've ever seen," Mastin said.

Indeed, Fredericksburg was a study in contrasts as the city came to grips with the potential hazards posed by two major kerosene leaks that threatened the city's water supply.

Downtown, at a makeshift command center set up at police headquarters, City Manager John Nolan proclaimed a state of emergency and huddled throughout the day with U.S. and state environmental experts. As officials attempted to determine how bad the contanimation was, citizens began to cut down on their water use.

"I filled my bathtub up," said Selma Shelton as she walked with her neighbor, Peggy Wingard, near the Rappahannock. "It's really an oily smell," Shelton said.

Wingard said she was worried that her three teen-age daughters might have to discontinue their daily showers. "They use gallons of water," she said.

Robert Carmichael stood in his front yard with his wife and watched convoys of trucks carry dirt for an earthen dam the city was building in the canal behind his home. "You don't miss the stuff until you don't have any. Then suddenly you get very thirsty for it," said Carmichael, 40, a service manager for a local trucking dealership.

At Mary Washington Hospital, engineers had two tanker trucks filled with 7,500 gallons of water waiting just in case. "We don't want to get caught with out pants down," said engineering assistant Bob Thomas. He said life inside the hospital remained normal yesterday.

"Unless they've got a radio, they don't realize there is a crisis yet," he said. City Manager Nolan said he was ordering an immediate shutdown of laundromats, car washes, and any other high users of water. "We're getting good cooperation. Everybody's going to pitch in," he said.