"Thailand has been recognised as an attractive destination for foreign investment in recent years," credit analyst Kim Eng Tan said following the release of a report into investment confidence in the Kingdom.

He said Thailand's reputation as an investment destination had suffered a number of setbacks over the course of 2006 and added: "Left unaddressed, diminished foreign-investor confidence will lower Thailand's economic prospects and weaken a key support for its creditworthiness."

The agency said the New Year's Eve bomb attacks in Bangkok were the latest in a string of events since early 2006 to hurt the investment climate.

Titled "Decisive Effort Needed to Reverse the Deterioration in Investment Confidence in Thailand", the report said the impact of such events on foreign investor confidence was of particular significance as foreign investment had been an important source of the nation's economic growth in recent years.

It also noted that prospects of poorer economic growth would further weaken support for sovereign credit ratings on Thailand unless the government takes decisive steps to reverse the worsening investment climate.

The perception of political stability in Thailand was damaged by the confrontation between the Thaksin government and its opponents, which culminated in the military coup on September 19.

The related public debate about the sale of Shin Corp, the privatisation of several state-owned enterprises and the issue of free-trade agreements in general suggested that local sentiment had turned against foreign investors.

This impression was reinforced by opposition to the expansion plans of international retail companies, which prompted the government to draft a law to regulate their activities.

Foreign investors were also unsettled by investigations into the use of nominees in the acquisition of Shin. Other foreign companies that had adopted similar strategies to acquire majority stakes in Thai firms now fear that their holdings could be declared illegal.

In the wake of the Bank of Thailand's abrupt introduction of capital controls in December, which have since been partially reversed, investors are wary of further sudden changes in government policies.

The bombings in Bangkok added security fears to the growing list of foreign investors' concerns.

"Nevertheless, many of Thailand's economic strengths remain unaffected by events in the past year. Rebuilding investor confidence to attract new foreign investment is therefore a key to maintaining economic growth at a pace similar to that seen in the recent past," said Tan.