About half of the storefronts on St. Paul Avenue, this town's main street, are boarded or empty, giving it an eerie, deserted look. A huge plywood sign beside one broken window says, "Vengeance belongs to me. I WILL recompense, says the Lord."

At Marv's Our Own Hardware, owner Marvin Schreiber said business is slow. "This is a farming community. If the farmer doesn't have any money, nobody else does either." The last 16 months have been devastating for Fulda, a once thriving town of 1,308 on the gentle, rolling prairie of southwestern Minnesota.

First, Citizens State Bank, which had survived the Great Depression, folded, a victim of falling land prices and liberal loan policies. Within months, Elders Rexall Drug, Barritt Construction, Hopkins Furniture, Jan's Coffee Shop, Vrieze's Bakery and Fulda Recreation, the town bowling alley, also shut down. Twenty-seven farms and businesses filed for bankruptcy in 1985. Dozens of others barely hung on. Retail sales for the area dropped to almost half their $6.7 million 1983 level. Several homes were sold at public auction. The number of children in Fulda schools applying for free or reduced-priced lunches jumped from 15 percent to 45 percent of total enrollment.

Mother Nature made a bad situation worse. "Last July we had a hail storm that practically wiped out the whole crop south of town. Then, we had an early fall snow storm and a lot of farmers didn't get their crops out of the field. Now all spring we've had one rain storm after another and they haven't been able to plant," said Ervin F. Haberman, a real estate agent and former farmer. "I'd like to tell a lot of the young farmers, 'Get the hell out of farming. It just isn't any use.' "

Spirits are understandably bleak. "I've sat around many kitchen tables, letting people know God has not forsaken them and the Lord indeed has not left Fulda," said the Rev. Gary Clayton, pastor of St. Paul's Lutheran Church.

The whole town shared the pain. In small-town America, everyone knows everyone else's business. Or they think they do. Birth, graduation and marriage are celebrated as major events; hardship, as a community tragedy.

"It just turns your guts to watch what's happening. It takes the moral fiber right out of a community," said Ed Van Ahn, manager of the Fulda Independent Coop. "It's tough to find the jovial person anymore, the guy with a smile on his face -- even those who are doing well."

Fulda, settled a century ago by German, Irish and Scandinavian immigrants who arrived in prairie schooners and built their first homes from sod, is like scores of other small towns in the Midwest heartland undergoing a massive upheaval.

These towns, like the family farms that surround them, have long held a special place in American culture. In the 1920s, Sinclair Lewis depicted one such Minnesota town -- he called it Gopher Prairie -- in his best-selling novel "Main Street." In the 1980s, Garrison Keillor captured another, "Lake Wobegon" (a place "where the women are strong, the men are good-looking and all the children are above average"), in his books and public radio programs.

Fulda resembles Keillor's and Lewis' towns. It is a place of friendly people, big yards, neat clapboard homes and not a single stoplight. There is, of course, a lake -- actually two small, connected lakes.

The Catholic church is on one side of town; the Lutheran church on the other. The town has a big grain elevator, a water tower painted baby blue, a lively newspaper called the Fulda Free Press ("The only publication in the world devoted to the best interest of Fulda, Avoca and Dundee-Kinbrae," according to its masthead), and one pub, Pirates Cove, which to the disappointment of some is now open only in the evening.

"You can't even howl during the daylight in this town anymore," one old farmer complained last week in Ray Kremer's barber shop. "I remember when you could get drunk any day or night of the week and have plenty of help. No more."

Until 18 months ago, banking was done at Citizens State Bank on a handshake. "You just told Bob Jr. what you needed and he gave it to you," said one longtime resident.

"My idea of the small town bank was you were supposed to loan money and keep the community going," Robert Howe Jr., former executive vice president of the bank, said in his home on the south side of the lake.

Last week, Howe Jr., whose father bought the bank 36 years ago, pleaded guilty to two charges in a $600,000 bank embezzlement scheme. But there is surprisingly little resentment against him here. "He helped a lot of people" is an often-heard remark.

Howe's life, however, is in a shambles. His father, R.P. Howe Sr., who lives less than a half-mile away, has filed a $1.7 million civil suit against him and has spoken to him only "two or three times" in the last 16 months; his wife has had to move elsewhere to find work.

"Mentally, I'm getting myself set for the longest prison term possible," the younger Howe said. "I'm getting awful philosophical. Maybe that's all I can do. Right now I have no future."

The good news is that Fulda is fighting back. The bad news is that it has a long way to go. "We've had a really hard struggle. We're by no means out of it, but we're going into a renaissance," said Mayor Mary Magnus, an energetic 33-year-old whose husband is a long-haul truck driver. "We've got a good four years' struggle ahead of us to keep our noses above water."

The town has scored some victories. Its Community Club has launched an effort to attract new business and have Fulda declared a "Star City" -- a status that would bring state help in attracting industry.

The goals are modest. "We don't expect to get a 200- or 300-job factory," said Mary Ann Boom, Community Club president. "Something that employs 30-40 people would be great. I'd be happy with one with 10 jobs."

A new bakery, a karate studio, a craft shop and a mini-mart grocery have opened in recent months. (A new bank, Fulda State Bank, opened days after the old one closed.) Another group, formed to preserve the lake, is sponsoring a fishing derby next weekend.

"We're trying to save our town is what we're trying to do," said real estate agent Haberman.

But the biggest change has been in attitudes. There is a genuine feeling of community unity here, a sense that Fulda and its residents will survive. "Last summer there were a lot of times suicide crossed people's minds -- or just getting in the pickup and taking off," said Magnus. "We're in better shape this year because we're pulling together as the family of Fulda."