With unmistakable elan, Sho Kosugi's elaborate Arcadia home declares its independence from the surrounding community of spacious ranch houses and understated charm.

Branded a "wart on the nose" by one city councilman, the 7-bedroom, 10-bathroom house stands three stories tall, its glazed blue-tile roof and Buddhist shrine the object of considerable attention and scorn.

Even before Kosugi--the star of several Oriental martial arts motion pictures--moved into the Longden Avenue house four weeks ago, it had come to represent something larger:

A growing Asian presence that has alternately confounded, changed and threatened to divide this conservative bedroom community of 46,000. Many longtime Arcadia residents point to the house as a not-so-subtle symbol of this presence.

In the past five years, Arcadia's Asian population has more than doubled, from 4% in 1980 to an estimated 9% today. Asians now have overtaken Latinos, who account for roughly 7% of Arcadia's population, as the city's largest minority group. While the overall proportion of Asians is still small, the numbers are seen as significant for a city whose racial composition remained 99% white until the late 1970s.

City officials--mindful that the cultural transformations of neighboring Monterey Park and Alhambra began with similar Asian population trends--say the percentage is likely to double in the next few years before topping out.

In the south Arcadia neighborhood surrounding the Kosugi residence, four homes in as many months have been sold to Asians, residents said. Judy Downes said young Asian couples speaking little English knock on her door and those of other residents on weekends, asking if they are interested in selling, even though their homes are not listed on the market.

Asians say they are drawn to Arcadia because of its good schools and quiet living. While San Marino remains a first choice because of its top rating in student standardized test scores, many newcomers say they are unable to afford houses there and regard Arcadia as the next best.

"If these people have copious amounts of money and can buy expensive homes, how can you stop them?" said David Hannah, an Arcadia City Council member.

The newcomers mostly are Chinese from Taiwan, with a smaller number immigrating from Hong Kong, Japan and Southeast Asia. Others are moving to Arcadia from Monterey Park, where only a few years earlier they settled after leaving native lands. They cite crowded commercial strips and crime as reasons for leaving Monterey Park.

Asian real estate agents--whose numbers in Arcadia have grown from a handful to more than a dozen as a result of the influx--say their customers mostly pay cash for houses costing upwards of $500,000. Because Arcadia is an established community where families tend to live a lifetime, the agents say, Asians often buy homes from recent widows and widowers or from elderly couples retiring to other communities such as San Diego.

"In the beginning, the buyers were professionals, such as doctors and engineers,"

said Meggy Huang, who owns M & A Realty in Arcadia with her husband, Andy. "Now most of my customers are businessmen from Taiwan who have made their money in the import-export trade. They like to deal in cash."

Because the newcomers have a larger than average number of children of school age, Arcadia schools provide even more dramatic evidence of a growing Asian presence. In the late 1970s, according to school board members, the Asian student population stood at 2%. In 1984, nearly 20% of the student body at the district's six elementary schools, three junior high schools and one high school was Asian. School officials predict that when the numbers for this school year are compiled in the next few weeks they will show continued growth.

'Caught Off Guard'

"It happened so fast that it's caught us off guard," James Bryant, a school board member, said. "Suddenly, we've been confronted with hundreds of students speaking a number of dialects who are not proficient in English.

"It's been a real challenge for us and has had a direct impact on the way we run our schools."

While scrambling to provide instruction to hundreds of newcomers enrolled in English-as-a-second-language courses, school administrators are bracing for the tensions that inevitably accompany such a cultural change. Last school year was marred by at least two fights between white and newly arrived Asian students.

"We're concerned about the potential for problems and have discussed ways of promoting understanding," said Stephen Goldstone, superintendent of schools who until last year oversaw a San Francisco Bay Area school system with a large Asian student population.

Not Always Racial

"People must remember that not all the time that an Anglo and an Asian student square off is it racial. Sometimes it is and sometimes it isn't."

Interviews with dozens of newcomers and longtime residents of this affluent city 20 miles east of Los Angeles suggest that the tension between the two groups extends far beyond the schools.

Before he moved into his home last month, Kosugi said, vandals had broken a window and damaged the framing. In recent weeks, the home has been vandalized four more times as people have thrown rocks and shot BBs through front windows. Kosugi, a former karate champion of Japan whose movies feature the medieval Japanese martial art of

warriors, said he built his home--a blend of traditional Japanese, Chinese and modern architecture--as a diversion from his busy Hollywood schedule.

Spiritual Adviser

The selection of the huge lot, he said, was the product of considerable deliberation in which his

or Chinese spiritual adviser, accounted for the celestial movements of the sun, moon and major constellations. The adviser rejected eight locations in San Marino and Arcadia before choosing the Longden Avenue lot as particularly propitious.

Kosugi remains confident of the selection even as he said he endures the disapproving stares from a steady stream of visitors who stop their cars in front of his house during the day. He said his children have heard racial slurs yelled from the cars that speed by at night.

"I think some are prejudiced and maybe some are jealous," said Kosugi, whose boyish smile and mop of hair belie his 37 years. "I don't impose my beliefs on anyone else. I wish the people here would allow my wife and me to raise our family in peace."

In a larger sense, many newcomers say, their arrival has been greeted with similar misunderstanding and disdain.

Encounters Resentment

Abraham Yang, a 17-year-old senior at Arcadia High School, lived in Monterey Park and Rosemead before moving to Arcadia two years ago with his parents and a younger sister. Yang, who works part-time at a service station on Huntington Drive, said his father was attracted to Arcadia because of its schools and conservative image. Yet the younger Yang said he routinely encounters anti-Asian sentiments from schoolmates and customers at work.

"It's mostly subtle, but it's there," said Yang, who immigrated to the United States from Taiwan when he was 4 years old. "You hear 'gook' and 'Nip' everywhere. I almost got into a fight once over it, but I've gotten used to it, I guess. It doesn't bother me so much anymore."

Elected officials and school administrators and leaders of the Asian community disagree over the level of tension between the newcomers and longtime residents.

Charles Gilb, a member of the City Council for 11 years, said many of his constituents express fear that their city will become another Monterey Park, with commercial strips awash in Chinese-language signs and Chinese spoken on every street corner.

'A Lot Are Bitter'

"There are a lot of people who are bitter about Asians coming here," said Gilb, who proposed a city ordinance requiring that English letters take up at least two-thirds of any foreign-language commercial sign. After a recent public hearing, the ordinance appears headed for adoption.

Gilb said he began to understand the depth of the resentment only after a group of junior high school students who are natives of Arcadia interviewed him for a class project last year.

"They told me this is our town and they (Asians) ought to get out. I asked them, 'What makes this your town? Did you go out and buy it?' They were so angry that it reminded me of the bitterness between blacks and whites years ago."

Gilb has been accused by Asian leaders of arousing anti-Asian sentiments with comments at recent City Council meetings. In May, Gilb expressed concern over reports that some homes purchased by Asians were being used to house several families.

Extended-Family Living

At the request of Gilb and other council members, the city's Planning Department studied the possibility of prohibiting extended-family living arrangements. The agency found that unless the families were violating building or health codes, the city was powerless to limit such arrangements.

Dr. Sheng Hsiung Chang, president of the Arcadia Chinese Club, said Gilb was unable to provide him with the location of even one house in which overcrowding existed. Chang said he also challenged Gilb to back up statements that recent Asian immigrants were chopping down healthy trees in Arcadia because of a cultural distaste for shade.

Chang and other Asian leaders said they were dismayed when Gilb's comments seemed to strike a chord with the larger Arcadia community. The local newspaper received about 20 letters to the editor either supporting Gilb or commending his sign ordinance as a warning to Asian businessmen contemplating a move to Arcadia.

'One-Way Ticket'

"If you think Oriental signs are so great, I will buy you a one-way ticket over there. This is our country and our city," wrote one resident in a typical response.

Another wrote: "I, for one, do not want my hometown, Arcadia, to look like Tokyo, Seoul or Hong Kong. Please leave your Asian signs in the old country and get Americanized."

Councilman Hannah, echoing the sentiments of several officials, dismissed as presumptuous any talk of racial tensions. Hannah conceded that a number of residents complained to the council about the Kosugi home and that the debate over the sign ordinance was particularly emotional. But he denied that either issue had anything to do with race.

"We do not have a racial problem in Arcadia at the moment. We have that one house that created a furor. But that's because it was very obvious. It's a wart on the nose.

Sign Ordinance

"And the sign ordinance was also in response to a legitimate concern. We don't want them (Asian businessmen) to come in as they have done in Monterey Park and take over the business strips with signs espousing the Oriental business philosophy.

"If they want to come to Arcadia and they want to be good citizens, they have to accept the language of Arcadia and the traditions of Arcadia."

City officials say that even if the Asian population doubles in the next five years as many predict, Arcadia stands little chance of following the path of Monterey Park, where a 40% to 50% Asian population has brought profound changes to many institutions, including law enforcement, schools and social service agencies.

The Monterey Park Police Department has established an Asian task force in conjunction with Alhambra police to concentrate on extortion and other gang-related crimes that go largely unreported in the Asian community. The city government sponsors cultural awareness workshops for city employees, and the city newsletter now contains a Chinese-language section.

City officials in Alhambra--where the Asian population has grown from 13% in 1980 to an estimated 26% today--say they are taking similar steps in response to the influx.

Chamber of Commerce

Kelvin Mason, executive vice president of the Arcadia Chamber of Commerce, cited a "cautious growth policy" and lack of available land for housing and commercial development as two key differences between Arcadia today and Monterey Park in the 1970s, just before a boom in its Asian population.

As if to underscore that distinction, the Chamber of Commerce sells license-plate frames proclaiming "Arcadia: Community of Homes." Mason said he failed to see a paradox in the Chamber of Commerce--normally an unabashed voice of business--promoting the virtues of quiet suburban living.

"The Arcadia Chamber of Commerce promotes the whole city of Arcadia, not just business. As more and more Asians move into our homes, attend our schools and buy our businesses, Arcadia outwardly has changed very little. It's still a city of homes."

But many residents say the language and cultural barriers between Arcadia and its newcomers have created the sense of two cities, separated by considerable misunderstanding and mistrust.

Reporting Error

For several weeks, some Asian residents mistakenly viewed two recently proposed city ordinances as singling them out. Chinese community leaders acknowledged that a reporting error in a local Chinese-language newspaper led many newcomers to believe that one of the ordinances would impose limits on the length of time extended-family relatives could live with one another.

Michael Miller, Arcadia city attorney, said the ordinance amending the definition of "family" as set forth by the courts actually achieves the opposite, clearing the way for people not related by blood or marriage to also live as a family for indefinite periods.

The other city ordinance, prohibiting certain uses of guest houses, was aimed not at newly arrived Asians but at jockeys and horse trainers who temporarily reside in Arcadia during the racing season at Santa Anita, Miller said.

"The Asian community has been misled by their own press," Miller said. "This city does not legislate with regard to race, creed or culture."

In a recently completed study by the Coro Foundation, a St. Louis-based nonprofit institute training community leaders, researchers found that communities become fragmented when public officials fail to promote understanding between newly settled Asian groups and established communities.

Dialogue Urged

After examining black-Korean relations in Los Angeles and Chinese-white relations in Monterey Park, the study urged elected officials and community leaders to cultivate a dialogue between longtime residents and newcomers by sponsoring public forums and small get-togethers.

Predicting future growth in Southern California's population of Pacific Asians, the study concluded that public officials, schools and human relations commissions should sponsor activities on a regular basis to "foster awareness, sensitivity and fellowship."

Like other cities, Asian community leaders say, Arcadia has been somewhat slow to recognize the need for such dialogue and bridge-building.

The Chamber of Commerce--despite the recent or planned opening of five Chinese restaurants in the city and the construction of a nine-store, Asian-owned shopping center on Live Oak--acknowledges little interaction with Asian developers and new business owners. There are no Asians or Chinese-speaking members of the 71-man Arcadia police force or the 56-man Fire Department.

A Better Record

While the schools have a better record of responding to the needs of the newcomers, Asian residents say, they too have acted belatedly. Last year, school administrators for the first time held a tea social for Asian parents. At several schools, principals used slide show presentations and translators to explain school activities and procedures to newcomers. Parent-teacher groups at each school now have Asian mothers acting as liaisons, and the district's Parent-Teacher Assn. Council has an Asian coordinator.

In its attempt to teach English as a second language, administrators said, Arcadia schools have been hampered by the absence of translators and a shortage of books and materials. Even so, many of the newcomers have acquired adequate English skills after only a year or two.

"I really look at this whole influx not as a problem but as a challenge," Supt. Goldstone said. "Our schools have helped absorb immigrants throughout our history. My hope is that we can also help these immigrants learn the language while not forcing them to lose their identity."

The question of identity is one that also confronts established Asians as they try to sort out their feelings for the newcomers. William Wong, who moved to Arcadia in 1957 and is regarded by many as the patriarch of the established Chinese community, recently expanded the menu at his Moon Palace Chinese Restaurant on Huntington Drive.

Spicy Sichuan Dishes

Wong said economics dictated that he add to his traditional Cantonese fare the spicy Sichuan dishes served by his competitors across the street.

"I had the first Chinese restaurant in the area, but quite a few have opened lately," said Wong, who has five children, three of whom attend USC. "It has hurt our business, but you have to accept competition as a reality of fact in our country. I welcome them."

Younger Chinese such as Abraham Yang say they feel embarrassed by the newcomers trying too hard to fit in.

"They either have the 'Taiwan-look' or the really exaggerated American punk look," Yang said of his schoolmates from overseas. "It's one extreme or the other. They hang around in close groups and give the rest of us a bad name."

Some elected officials fear that the tendency by newcomers to form insular groups will only grow as the Asian population of Arcadia increases and their need to assimilate lessens.

Others Less Pessimistic

But others, such as City Councilman Dennis Lojeski, are less pessimistic about the future.

"I live in the northeast part of Arcadia, which had a large population of Asians," said Lojeski, a former mayor. "Yet out of the 110 kids in my son's Little League, only two are Asian.

"That tells me two things. We, as a community, have been remiss in reaching out. And maybe they, as a community, are a little too fearful of jumping in. It's a two-way street. Maybe it's time we both make a better effort."