MR Pridiyathorn Devakula, finance minister, said the government had acted in the interests of the private sector, especially exporters who were suffering from the strong baht.

Deputy Premier and Finance Minister Pridiyathorn Devakula yesterday quickly reversed the government's capital-control policy by exempting the ultra-sensitive stock market from a controversial reserve requirement and tax.

In a nationally televised announcement, Pridiyathorn admitted foreign investors had been severely hit by the capital reserve and tax measures, resulting in the Thai stock market's free fall.

Yesterday, the Stock Exchange of Thailand recorded the single biggest one-day loss in its history with Bt820 billion in paper wealth lost as the key SET index plunged by 14.8 per cent.

Regional stock markets also fell in tandem, with Jakarta down 2.9 per cent; Kuala Lumpur down 2 per cent, and Singapore down 2.2 per cent.

Pridiyathorn said the 30 per cent capital reserve requirement would remain intact on funds brought into the country for investing in financial instruments, as well as for borrowings.

However, there would be no such requirement on foreign funds brought into the country for foreign direct investment and for investing in the stock market, starting today.

He said the stock market should recover in stages and admitted that the damage in terms of a massive loss of market capitalisation was far beyond any expectation.

The finance minister said he hoped the negative consequences on the stock market would not be long-lasting, but Piyasvasti Amranand, the energy minister and a former asset management executive, warned there could be long-term negative impacts.

Meanwhile, the Thai baht fell 2 per cent to about Bt36 to the dollar. Until yesterday, the currency had risen by 16 per cent this year against the dollar.

Earlier, Pridiyathorn said the Bank of Thailand had acted in the interests of the private sector, especially exporters suffering from the strong baht, by introducing the capital reserve and tax measures.

The government wanted to take care of the Thai economy over the interests of foreign speculators, but it seemed to have under-estimated the huge negative impacts on the stock market.

Critics said the measures imposed by the central bank were probably too harsh and resulted in the stock market's free-fall.

The central bank allowed foreigners yesterday to keep more baht in the non-resident baht account in order to provide room for them to keep their baht liquidity after the anti-speculation move made them shift capital out of the stock market.

Late in the afternoon, the BOT cancelled the ceiling on outstanding baht liquidity in non-resident baht accounts per person, set earlier at Bt300 million. The ceiling was set because the BOT wanted to cut foreigners' baht liquidity.

However, the central bank moved to cancel the ceiling to allow foreigners to "park" their baht after they got out of the stock market.

On Monday, the BOT announced that Thailand would require a sweeping 30 per cent reserve on foreign capital brought into the country. It meant that if investors or speculators pull back money within three or six months they would lose a 10 per cent withholding tax on the entire amount.

But if they took money back after a year, they would be subject to no tax. In effect, all foreign funds were negatively affected, including those for FDI and investment in the stock, property and other markets.

The negative impact on the stock market was huge, as yesterday's crash was the biggest one-day fall in the bourse's 31-year history.