Thousands of shopkeepers on the European side of the city bowed to Marxist militants and shut their stores today in the face of threats of death and destruction of their businesses.

Only a handful of shops were open at Beyoglu, the main shopping district here, which runs from the city center to the shores of the teeming Golden Horn harbor. Barred and unlit, the jewelers, boutiques, beer parlors and cinemas showing nudie films stood witness to fear and the deterioration of law and order in Turkey's largest city, despite martial law conditions.

But the most severe reaction came from leftist workers employed at state factories in the Aegean harbor of Izmir. They dug into factories and refused to leave when Turkish Prime Minister Suleyman Demirel decided to weed out leftists in the work force.

Today, the free-enterprise prime minister sent in troops and police backed by tanks to force the leftists out. Four soliders were wounded and hours-long gunbattles took place in and around the factories.

The militants in Istanbul appear to be trying to rouse the populace from the gloomy resignation that has spread after the recent skyrocketing of prices. For the past few days they have been visiting different districts, ordering shopkeepers to shut their doors to "boycott the increase in prices."

More than 300 of them, including teen-age pupils, were arrested yesterday. But this did not prevent others from threatening shopkeepers in the European districts of the city of 5 million this evening.

This morning troops and police used loudspeakers urging people to open their shops and promising protection. Fear of terrorists in this NATO-member state appears to be much stronger than confidence in state authority.

Grocers, too, were shut down. Thousands of people queued outside bakeries in the ceaseless rain, which added to the gloom and misery.

Armored cars and green military trucks were parked at vantage points. Soldiers carrying rifles with fixed bayonets -- as much a part of the Istanbul scene as the minarets -- stopped pedestrians at random for security checks.

At least one arms-carrying youth was shot dead when he defied orders to halt.

Crack troops wearing blue berets guarded the few shops that dared to open their doors. Three soldiers took shelter under the awning at Vakko's protecting Turkey's most exclusive clothing store, where a silk shirt costs more than an average worker's monthly wages.

Inflation, which was 80 percent last year, has skyrocketed as a result of Demirel's recent austerity measures. He doubled the prices of basic commodities and services in an attempt to liberalize the economy and open it up for foreign capital. As a result, the cost of living went up 8 percent in Istanbul last month. The increase is likely to be higher this month.

The majority of the 45 million Turks greeted the measures with resignation. "The resigned will inherit the earth," a Demirel supporter commented.

But for the first time since 1977, when Turkey's worst economic crisis started, there were incipient signs of mass reaction.

The inhabitants of the Princess Islands off Istanbul refused to pay quadrupled fares and forced their way through barriers to travel free across the Bosporus Strait. Trucks carrying food were looted under the guidance of Marxist terrorists.

Demirel claims he is doing what has to be done to end the economic crisis and avert a fate worse than bankruptcy.

"There is no need for panic," he said today, at the conclusion of a six-hour Cabinet meeting. "The state exists and is capable of crushing its enemies."