The Thai baht has been a standout unit in the region after rising to a nine-year high against the greenback, putting pressure on the key exporters and prompting complaints by powerful union and business lobby groups.

The junta, however, may have overstepped the mark by seeking to rein in the baht with the Thai benchmark index plunging more than 10 per cent at the open and forcing the Stock Exchange of Thailand (SET) to suspend trading.

On the resumption of trade, the SET 50 crashed 85.89 points or 11.76 per cent to close the morning session at 644.66, off a low of 630.16. It was the biggest one day fall in the 31-history of the SET.

Among Thailand's closest neighbours, Kuala Lumpur was down 2.91 per cent in early afternoon trade, Jakarta slumped 1.93 per cent, Singapore was off 1.76 per cent while Hong Kong was down 1.24 per cent.

Under new rules announced by the Bank of Thailand (BoT) late Monday, 30 per cent of all foreign capital inflows above 20,000 dollars will be held by banks for 12 months in a bid to curb a sharp appreciation of the baht.

This means for every 100,000 dollars invested in stocks, for example, the banks will hold back 30,000 dollars. No interest will be paid on that money and it would be lost if the investment is pulled out of the country within one year.

Central bank figures showed that as much as 950 million dollars of foreign capital flew into Thailand in the first week of December, rising sharply from the average of 300 million dollars per week last month.

"The new measure really dampened sentiment. It (makes) the Thai stock market less attractive for short-term foreign investors," said Sukit Udomsirikul, a senior market analyst at Siam City Securities.

Asian stocks have been primed for a correction with benchmarks trading at or near record and multi-year highs and dealers said that just with three business days before Christmas, investors might feel compelled to sell.

"It's the contagion effect of the capital controls imposed by the Thai government," chief economist with RAM Consultancy Services, Yeah Kim Leng, told AFP in Malaysia. "It has affected foreign investor sentiment and confidence."

Tokyo fell 1.09 per cent, Manila was down 0.98 per cent and Seoul shed 0.38 per cent with dealers saying turbulence in Bangkok had probably dashed hopes for a year-end rally.

However, losses were modest in Sydney, Taipei and Wellington where local factors outweighed the impact of the chaos in Thailand.

"This is in a way reminiscent to the pre-1997-98 crisis. Of course capital controls are frowned upon, especially (by) portfolio investors, so as a result, it's a knee-jerk reaction on the regional markets," Yeah said.

The Asian financial crisis had its roots in Bangkok when excessive borrowings in US dollars coupled with high interest rates forced the government to float the currency, which then promptly collapsed along with the economy.

Over late 1997 and 1998, the contagion spread across the region. Currencies and stock markets failed as businesses went bankrupt and recessions followed, with governments frantic to shore-up their economies.

Yeah said, however, that a repeat of that crisis was unlikely.

"The monetary authorities have learnt their lessons so there is now less foreign currency exposure but nevertheless it signals a pre-emptive strike on hot or speculative short-term capital inflows," he said.

Agence Frrance-Presse