There have been worries about overseas speculation on the baht

Moves had been announced to deter overseas speculators from flooding the market and prevent further rises in the value of the baht.

The rising currency had threatened the country's export industries.

But as foreign investors sold stock the finance minister said equity investment would not be included in the new move.

If you get a major stock market sell-off in one day based on a policy measure, I think the market will question the [bank] leadership

ABN Amro

The Bank of Thailand had said late on Monday that 30% of non-trade related foreign exchange sold for the local baht currency must be deposited interest free with the central bank for a year.

The measures also included a rule that required all new foreign investments over $20,000 to stay in the country for at least a year.

However, after the stock market slide Finance Minister Pridiyathorn Devakula said on television that from Wednesday foreigners would be able to trade equities free of the restrictions on short-term fund inflows.

The restrictions still apply to overseas investments in bonds.

Money flowing in

The SET stock market index ended trading at 622.14 points - after its biggest one-day fall since Saddam Hussein invaded Kuwait in August 1990 - with the banking, energy and telecommunications sectors all hit.

The reverberation throughout the region was the most dramatic since the 1997 Asian financial crisis.

In 1997, dramatic outflows of foreign funds - initially in Thailand - led to the Asian financial meltdown.

Monday's move by the central bank was its third recent attempt to stop currency speculation.

The authorities have felt vulnerable at so much overseas money circulating in the economy as investors have looked to speculate on the markets or baht.

Central bank figures showed that up to $950m of foreign capital came into Thailand in the first week of December, up from an average of $300m a week in November.

Analysts were left wondering why the bank would make such a "draconian" move.

"Frankly, if you get a major stock market sell-off in one day based on a policy measure, I think the market will question the leadership. It's as simple as that," Shahab Jalinoos, a strategist at ABN Amro Bank in Singapore, said.

The baht had hit a nine-year high of 35.09 against the US dollar on Monday.

The baht, and Thai economy, had been under pressure following September's military coup in the country, but the authorities had moved to reassure markets and investors.