The Bangkok bombing rattled the financial market yesterday, sending Thai shares to their lowest level in 19 months and the baht to a more than six-year low.
Economists believe the explosion could take a toll on the tourism industry, one of the few growth sectors.
The Stock Exchange of Thailand (SET) index sank 2.7% immediately after the opening bell yesterday, and the selling spree intensified in the afternoon session to the day's lowest level of 1,362.31 points or a 3% drop.
However, bargain hunting emerged in late trade and pared some losses. The main gauge closed at 1,372.61 points, down 2.56%, with brisk turnover worth 78.4 billion baht.
Tourism-related stocks led the sell-off. Airports of Thailand (AOT) tumbled 6.62% to 268 baht, Central Pattana (CPN) shed 6.67% to 42 baht, Minor International (MINT) lost 7.06% to 23.70 baht, Central Plaza Hotel (CENTEL) plummeted 4.75% to 33 baht and Erawan Group (ERW) slid 10.6% to 3.70 baht.
Foreigners sold 6.91 billion baht more than they bought yesterday.
The baht fell to 35.53/35.55 against the US dollar from 35.36/35.38 before Monday's blast, while Finance Minister Sommai Phasee admitted the bombing would shake investors' confidence.
The effect on tourism will be short term, as attacks in other countries are more serious, finance permanent secretary Rungson Sriworasat said.
Prinn Panitchpakdi, country head at CLSA Securities, said the worst-case scenario this year could be GDP growth of 2.3% or 2.4% due to contracted exports and the bombing's effect on tourism.
CLSA is still maintaining its forecast for economic growth at 2.8%.
If the bombing is related to domestic politics rather than international terrorism, this would cause psychological concerns about heightening political tensions, Mr Prinn said.
He said the weakening baht reflected short-term concerns about Thailand's economic conditions, while the bombing had undermined investor confidence.
Standard & Poor's Ratings Services said the bomb attack had a limited immediate impact on sovereign credit support for Thailand but had increased uncertainty over political stability and would put more pressure on near-term economic prospects.
Weaker tourism trade in the next two or three quarters is likely to hurt Thailand's economic growth.
"We expect tourists to be more wary this time, as the incident appeared to be aimed at creating casualties in a venue popular with foreign visitors," S&P said.
Voravan Tarapoom, chairwoman of the Federation of Thai Capital Market Organizations, said the blast would have only a short-lived impact on market sentiment.
The sharp fall in the stock market presents a buying opportunity for long-term investment as listed companies' fundamentals remain unchanged, she said.
SET president Kesara Manchusree admitted the bombing had hurt market sentiment but said many Thai shares yielded more than 5% dividends and were resilient to the situation.
Bangkok Bank president Chartsiri Sophonpanich said the country would return to normal soon, as the government had handled the bombing well.