The sharp drop in regional stock markets and on Wall Street was because of fresh jitters brought on by US inflation and the yuan's rise. China's yuan yesterday broke through the psychologically important resistance level of eight to the US dollar.

Also yesterday, the baht's depreciation broke through the 38 level, closing the day's trough of Bt38.09/Bt38.16 to the dollar.

The Straits Times of Singapore took the hardest blow in the region, with a 3.72-per-cent fall. Share prices in the Philippines dropped 3.16 per cent, in South Korea 2.16 per cent and in Hong Kong 2.41 per cent.

Soon after the curtain was raised, the Stock Exchange of Thailand (SET) Index fell dramatically, heading farther south in the afternoon session to the day's trough at 763.69 before recovering slightly to finish the day at 765.97. Turnover was moderate at Bt19.26 billion.

Energy and banking stocks were at the centre of the selling pressure. Bangkok Bank (BBL) was off 3.42 per cent at Bt113, Siam Commercial Bank fell 3.7 per cent to Bt65, PTT Exploration and Production Plc (PTTEP) dived 3.2 per cent to Bt121, PTT Plc dropped 2.31 per cent at Bt254, and Thai Oil Plc (TOP) slumped 2.2 per cent to Bt66.

Globlex Securities vice president for research Warut Siwasariyanon said foreign investors sold Thai shares to shift their money to subscribe to IPO shares of both Thai Beverage and the Bank of China.

He said the baht's depreciation against the greenback amid the dollar's weakness signalled an outflow of money to buy the IPO shares.

Thai Beverage, Thailand's largest brewery and distillery, is expected to raise 1.8 billion Singaporean dollars (Bt43.56 billion) from selling 4.88 billion shares at 26-36 Singaporean cents a share, and it will debut on the Singapore Exchange at the end of this month. The company decided to list its stock in Singapore following strong protests by social activists and religious sects against its plan to list in the Thai stock market. However, the company promised a dual listing in the Thai market once the Securities and Exchange Commission approved it.

But MR Pridiyathorn Devakula, governor of the Bank of Thailand, said that yesterday's depreciation was not caused by investors selling baht to invest in the IPO of Thai Beverage in Singapore, but because the baht was moving more in line with other currencies in the region.

The governor argued that although foreign investors may have moved their money to invest in Thai Beverage stock in Singapore, in the end the liquor producer would move even more money to be raised in Singapore back to Thailand after the IPO.

The Bank of China's indicative price range for the offering of about 2.6 billion shares was set at 6.93-9.50 Hong Kong dollars (Bt34.25 to Bt46.75) for institutional investors.

Warut said selling pressure from both foreign and local investors to prepare to subscribe to Rayong Refinery Plc's IPO shares, to be held May 18-19, was partly to blame for the stock market's steep fall.

Kim Eng Securities (Thailand) Plc's head of research, Pongpan Apinyakul, said the baht's weakness yesterday could be ascribed to foreign investors' switching to buy Thai Beverage stock in Singapore.

However, he dismissed the market's jitters by saying the depreciation would be short-lived, because proceeds from Thai Beverage stock would flow back into Thailand.

He called the steep decline in Thai shares an opportunity for investors to buy, since the broker believed that the SET index would reach 800 points this year.

Bank of Ayudhya financial-market analyst Anirut Pimpun was quoted by Manager Online as saying investors had sold the baht to buy Singaporean dollars in preparation for snapping up Thai Beverage stock.

A trader at BankThai echoed Anirut's view by saying the shift to buying Thai Beverage stock in Singapore was the main reason behind the baht depreciation.

The announcement of October 22 as the date for a new general election was also another reason, as investors considered it to be too far away and possibly effecting government spending.

A Bank of Thailand official, however, said the baht's weakness was in line with the region, as investors changed to buy US dollars to mitigate risk.