how does pearl react to the scarlet letter?

Pearl is very much like the Scarlet letter. She is the living manifestation of the embroidered letter on Hester's bosom. The irony here is that Pearl is not so much a reminder to Hester of her sin but rather her only blessing. Thus the symbol on Hester's chest and her daughter become one. They are both sign and symbol of the one blessing Hester has even though the town chooses to see it as sin. The most telling reaction little Pearl has to the letter is when she is a baby,

"One day, as her mother stooped over the cradle, the infant's eyes had been caught by the glimmering of the gold embroidery about the letter; and, putting up her little hand, she grasped at it, smiling, not doubtfully, but with a decided gleam that gave her face the look of a much older child. Then, gasping for breath, did Hester Prynne clutch the fatal token, instinctively endeavouring to tear it away; so infinite was the torture inflicted by the intelligent touch of Pearl's baby-hand. Again, as if her mother's agonized gesture were meant only to make sport for her, did little Pearl look into her eyes, and smile!"

The child smiles and caresses the symbol on her mother's bosom. The irony here is unrelenting. The "sin" that the town wishes to see is infact love in its purest form.