Faster than gossip, computers are spreading confidential information about employees - often with equally devastating results, researchers have found.

Financial, legal, medical and other personal information collected by companies about their workers and potential hires is frequently misused, according to a new study on privacy released this week by the University of Illinois."The vast amounts of personal information collected about every man, woman and child in the nation is stored and transferred at the press of a computer button," said David F. Linowes, author of the study, "Privacy in America: Is Your Private Life in the Public Eye?"

The report covers a wide range of privacy issues, pointing out that information about individuals is available from credit bureau files, magazine circulation files, charitable-organization files and many other sources. This information can be tapped by employers, government agencies and others.

In a chapter examining individual privacy protection in business, the study shows how the transfer of erroneous or out-of-context information can stall or ruin a career.

For example, according to Lin-owes' study, "A candidate for a key job in a corporation in the Southwest was passed over because his personnel file included the phrase, `has larcenous tendencies.' "

It turned out that the job candidate's file "had been improperly summarized, and investigation showed that a prank played in the ninth grade had been the basis of the damning phrase," Linowes said.

Linowes said that the condition of employee-file confidentiality is as poor today as it was in 1977, when the Privacy Protection Committee submitted a report to Congress and to then-President Carter detailing privacy abuses and recommending a series of protections for private-file confidentiality.

Linowes' latest study on privacy partly involved a survey of 275 Fortune 500 companies, 126 of which responded to a 16-page questionnaire covering broad categories of privacy issues, such as disclosure of personal employment data and the use of investigative firms to check out employees' backgrounds.

Several companies contacted by The Washington Post said that they are doing more information-gathering on employees but said they have also taken additional steps to protect access to that information.

For example, Allied Signal Aerospace in Kansas City, Mo., keeps employees' medical and legal records separate from their overall profiles, said Allied's Don Shaw. "People really shouldn't have easy access to employees' medical records," he said. Likewise, an employee filing a job-discrimination complaint against the company "should be able to do so without a supervisor using that information to deny a promotion," he said.