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Fifth Avenue, home to some of New York's most elegant and expensive stores, is so swamped with peddlers that it resembles a sleazy third-world bazaar, merchants say.

The street peddlers make midtown sidewalks impassable, drive customers away from legitimate rent- and tax-paying stores and defraud customers with shoddy or counterfeit goods, businessmen testified at a hearing Wednesday of the State Senate Investigations Committee.

Witnesses presented an array of counterfeit T-shirts and fake wristwatches bearing names like Gucci and Chanel, Rolex and Cartier that are being peddled.

"New Yorkers are savvy about this, but often out-of-towners are victimized," said Arthur Martinez, vice chairman of Saks Fifth Avenue.

Sen. Roy Goodman, R-Manhattan, said his staff counted 166 street peddlers on a 10-block stretch of Fifth Avenue on a recent Sunday afternoon.

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