NEW YORK, Nov 2 (Reuters) - There was smoke but little fire Tuesday as New York City tried to sell retail investors a first-of-its-kind bond deal backed by revenues from the national tobacco settlement.

A city official said that after one day of a retail order period, just $37 million of the $709 million deal had been placed. ``We're at five percent, if we can double that or do better tomorrow it will be a great help for Thursday'' when the deal is formally priced for institutional investors, said the city official, who declined to be named. Members of the bond syndicate, led by Salomon Smith Barney, said they were finding resistance to the offering because of its complexity and risks investors are finding hard to measure, including where cigarette consumption will be in 30 years when the last bonds mature. ``We've gotten no retail at all on this deal,'' the manager of one underwriting desk said. ``There has been a very negative response.'' ``Clients don't get it,'' he said, explaining that the structure of the bonds -- which includes different yields for rated maturities and bonds with planned principal payment dates -- is confusing for retail investors. On top of that, the tobacco bonds aren't considered all that cheap, the manager said. ``I think retail to some extent thought it would be cheaper in the first 10 years,'' he said. The tobacco bonds were priced for retail to yield as much as 6.45 percent for bonds that carry a planned principal payment date of 2029. The threat of costly litigation against the tobacco industry is one of the greatest risks that bondholders face, many market participants said. ``There's another lawsuit coming out every single day, and I don't think retail is going to buy it,'' said one underwriter at a Wall Street firm that is involved with the sale. ``Why on earth would you buy a bond that pays around a 6.40 percent when you don't know where the tobacco industry is going to be in 30 years?'' The bonds will be sold to institutions on Thursday, and several mutual fund managers said their firms had not yet decided whether they would buy. Mary Miller, head of the municipal bond department at T. Rowe Price Associates in Boston, said she remains skeptical. ``Can anybody forecast what smoking patterns and volume will be 30 or 40 years from now?'' Miller said. Joseph Deane, a managing director at Salomon Smith Barney Asset Management, agreed. ``With today's spreads, it will be quite some time before we take a very serious look at the credit,'' he said. New York City did win some points by creating additional structural enhancements to the transaction in the form of a ``trapping account.'' That additional reserve account requires that the city stop receiving its residual payments under certain scenarios. More money would be held in reserve if, for instance, cigarette consumption falls below a certain level.

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