HONG KONG, Dec 20: Asian stocks recovered from sharp falls on Wednesday after Thailand's military government backed down on imposing harsh currency controls which saw Bangkok shares lose a massive 15 per cent.

The flip-flop and a steady performance on Wall Street overnight had investors chasing bargains following Tuesday's sell-off amid chaos in Thailand and echoes of the 1997 Asian financial crisis.

The market is up on a recovery from yesterday's (Tuesday's) shocker,” said Gabriel Yap, a dealing director with Phillip Securities in Singapore. It's not something that will have a systematic hold on the market.

Late Tuesday, Thai Finance Minister Pridiyathorn Devakula was forced into an embarrassing policy U-turn after an unprecedented 23 billion dollars was wiped off the value of Thai listed companies in one day.

The rout was triggered after the military-backed government imposed capital controls in an effort to check the increasing pressure a rising currency was putting on exports, a key driver for the economy.

The punitive measures in practice stopped foreign fund inflows dead into a market where they had been very important and Pridiyathorn, formerly a central bank governor, declared an exemption on stock investments.

In Bangkok -- where foreign investors account for about 40 per cent of the market -- the Stock Exchange of Thailand (SET) closed up 11.16 per cent, with benchmarks elsewhere following suit.

With the change, foreign investors can continue to invest in the Thai stockmarket. Sentiment is really positive, said Sukit Udomsirikul, a senior market analyst at Siam City Securities.

However, investors remain less than impressed with the government which was installed through a bloodless coup in September that ousted prime minister Thaksin Shinawatra, a former telecoms tycoon known for his business savvy.

It really damages the government's credibility. You cannot suddenly change important regulations overnight, said Sukhbir Khanijoh of Kasikorn Securities.

Krungthep Thurakit, a leading Thai business daily, demanded someone should take responsibility for the mess, adding: “It was the most expensive economic lesson for Thailand since the financial crisis in 1997.Around the region, the reaction was one of relief.

Among Thailand's closest neighbours, Singapore was up 0.81 per cent, Kuala Lumpur gained 1.50 per cent and Jakarta rose 1.73 per cent.

Hong Kong closed 1.45 per cent higher while Seoul finished up 1.02 per cent, with dealers saying the impact from the Thai debacle on local equities there had fizzled out.

The capital controls were reminiscent of the 1997-98 Asian financial crisis when excessive borrowings in US dollars coupled with high interest rates forced the Thai government to float the currency.

The Baht then promptly collapsed along with the economy and 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.

Central bankers and governments played down suggestions that their countries might follow Bangkok's latest lead and ruled out any repeat of the havoc that engulfed East Asia in the late 1990s.

Harry Su, head of research at BNP Paribas said from Jakarta the knee-jerk reaction to the controls on Tuesday was largely because of the spectre of the financial crisis in 1997 and 1998.

Elsewhere, benchmarks tended to follow local factors resulting in Tokyo closing up 1.40 per cent and above the critical 17,000 points mark while Sydney, Shanghai and Wellington registered solid gains to close at record highs.—AFP