For an example of the sort of deficit-reduction measure that is evoking hoots and howls and cries of phony spending cuts from conservatives, it is hard to top the "orthopedic shoe" provision.

Under the provision, which is expected to be included in pending legislation to shrink the deficit, the federal government would buy orthopedic shoes for Medicare recipients who have circulatory problems in their feet caused by diabetes. Proponents claimed that by buying the $300-a-pair shoes, the government would save $25 million in the current fiscal year. How? Simple: Thanks to the shoes, the government would have to finance fewer expensive foot amputations for elderly diabetics.

The orthopedic shoe provision -- which the Reagan administration insists would actually cost money -- is a tiny one in the context of the $1 trillion federal budget. But it illustrates why many conservative lawmakers are screaming that the deficit-reduction agreement announced yesterday would hardly scratch domestic spending programs. "This is blasphemous," sputtered Rep. Fred Upton (R-Mich.), a former White House budget official.

Upton and other Republicans complained that by endorsing the plan, President Reagan has effectively agreed to do what he said he would never abide: raise taxes to finance higher government spending, both defense and nondefense.

Furthermore, they argued, the spending cuts envisioned in the accord are based on shaky assumptions and, as a result, the plan won't instill confidence on Wall Street or in foreign capitals. It would be better, they contended, to kill the agreement and implement a $23 billion across-the-board cut in many domestic and defense programs as envisioned by the Gramm-Rudman-Hollings law.

An across-the-board cut "would be simple and predictable -- and it's real," said Lawrence Kudlow, another former White House budget aide. On Wall Street, "they're beginning to see through the veil, and see the smoke and mirrors," added Kudlow, chief economist at Bear, Stearns & Co.

But the Reagan administration rejected that logic. For one thing, an across-the-board cut would savage military programs, administration officials told GOP lawmakers. What's more, they reasoned that the symbolism of the executive and legislative branches working together probably mattered more than anything else to financial markets and to foreign governments, which have been demanding that the United States shrink its budget deficit.

The symbolic power of yesterday's announcement wasn't clear. Although the stock market moved upward modestly following the announcement of the agreement, considerable skepticism remained on Wall Street about the package's immediate prospects and possible long-term effects. {See related story on Page C1.}

The markets "already had kind of a downward adjustment in expectations earlier in the week" about the quality of the budget agreement, said Richard Hoey, economist at Drexel Burnham Lambert Inc. "This is hardly a revolutionary reform of the budget system," Hoey added, "but there are two very separate issues here: One is the budget itself, and the second is national leadership. The outcome is kind of plain vanilla."

Early reaction from the business community appeared cautious but favorable. General Motors Corp. Chairman Roger B. Smith, speaking as chairman of the Business Roundtable, the major big business lobby, called the agreement "an encouraging first step."

Treasury Secretary James A. Baker III asserted that negotiators had worked hard to eliminate questionable savings from the package. "There are no smoke and mirrors in the revenues. There are no smoke and mirrors in the spending reductions," he said.

But to conservatives on Capitol Hill and their allies, the agreement looked like surrender. Many of the savings envisioned for domestic spending, they said, were either phony or unlikely to result in meaningful program reductions.

For example, the agreement calls for a cut of $2.6 billion in the current fiscal year for nondefense programs that are subject to annual appropriations. But according to conservative budget analysts, only about $1.6 billion of that comes from social programs traditionally supported by liberals. Much of the rest comes from accounts such as the State Department, international security assistance and other programs that don't fall under a domestic heading.

A projected savings of $2.4 billion in the 1989 fiscal year arising from a change in pay for federal employes shouldn't be counted at all, these analysts added, because it is already calculated in the projected savings from general appropriations.

Furthermore, conservatives asserted that the projected savings in big programs like Medicare are subject to finagling by congressional committees controlled by Democrats.

The agreement doesn't actually specify where such cuts are to come from; it doesn't mention individual items such as the orthopedic shoe provision. But it sets targets for congressional committees to meet. And there is wide agreement on Capitol Hill that items such as the one involving orthopedic shoes -- which was included in pending House and Senate bills that have moved well along in the legislative process -- will be used by the committees in meeting their goals.

"If you go back to the individual committees of the House and Senate -- and I don't see any other way of doing it -- there will be hand-to-hand guerrilla combat on every nickel and every dime," said Stephen Bell, former GOP staff director of the Senate Budget Committee. "And the natural compromising process will erode further the savings which are envisioned in this agreement in principle.