REPORTS UNSETTLE MARKETS : DOW INDEX RETREATS 57 POINTS AS INFLATION FEARS HURT BONDS.

Byline: Diana B. Henriques The New York Times

Stocks suffered sympathy pains Tuesday after the bond market was bruised by unexpectedly strong retail sales and higher consumer prices. A broad decline resulted, leaving the major stock market barometers down about 1 percent for the day.

The Dow Jones industrial index declined more than 50 points after 2 p.m., setting off the month's first mandatory limit on computer-driven trading on the New York Stock Exchange. The Dow closed the day at 5,647.28, down 57.70 points, its largest decline since July 15.

The broader Standard & Poor's 500-stock index fared a bit better, tumbling 5.57 points to close at 660.20 for the day. The NASDAQ composite index also fell sharply but steadied a bit before the closing bell to end the day at 1,126.15, down 12.12 points. Declining issues led advancing ones 1,506 to 852 on the Big Board, where daily trading volume was relatively light at 362.5 million shares, compared with a daily average this year of 410 million shares.

Behind the slide were two government reports showing retail sales in July rose 0.1 percent after dropping a sharp 0.5 in June - a revision of an earlier estimated drop of 0.2 percent - and the Consumer Price Index rose an unexpectedly high 0.3 percent in July.

Of course, the inflation-sensitive bond market saw even worse damage, with the benchmark 30-year Treasury bond falling 18/32, to a price of 99 19/32, or $12.50 for each $1,000. This pushed its yield up to 6.78 percent from 6.69 percent Monday, the largest one-day gain in yield since July 5. Most market economists had expected slightly weaker retail sales and smaller consumer price gains, and the afternoon surprise gave bond traders a rocky day.

But there are no indications that those fears of inflation are justified, several economists said.

``The bond market has almost become a casino where instead of guessing on black or red, they guess on the weekly and monthly economic statistics,'' said Lawrence Chimerine, managing director and chief economist of the Economic Strategy Institute in Washington. ``But what impresses me most about inflation - what I hear over and over from all the companies I talk to - is that they still have little or no pricing flexibility. That's the clearest sign that there is little inflation pressure in the economy.''

Steven Einhorn, portfolio strategist for Goldman, Sachs & Co., agreed. ``The markets are jittery on a short-term basis, but that is not something that will be long-lasting,'' he said. ``This economy can deliver corporate profit growth of about 10 percent, and that is simply not consistent with poor equity markets.''

Indeed, corporate earnings played only a small role in Tuesday's market swoon, apart from the semiconductor sector, which was slightly beaten down after Maxim Integrated, a maker of circuits for electronic devices, reported fourth-quarter earnings of 49 cents a share, less than the 50 cents analysts had expected.