* Stocks fall 2.3 percent, hit lowest since Jan 2007
* Baht hits one-year low, central bank steps in
* Government bonds seen as safe haven with inflation
(Updates with closing stock market prices)
By Orathai Sriring
BANGKOK, Sept 2 Thai stocks hit a 19-month low
and the baht touched a one-year trough on Tuesday after the
prime minister imposed emergency rule, but domestic government
bonds rose as local investors sought safe haven for their
Shares in the tourist sector took a hit after foreigners
cancelled flights when some countries issued travel warnings,
although Thai Airways (THAI.BK) rallied in late trade.
The benchmark SET index .SETI ended down 2.3 percent at
659.51 after touching 655.62, its lowest since January 2007.
The market has lost 24.7 percent since street protests began on
Thai Prime Minister Samak Sundaravej declared a state of
emergency in Bangkok on Tuesday and gave the army control of
public order after a man died in overnight clashes between pro-
and anti-government protesters. [ID:nSP172153].
"Announcing a state of emergency is proper and timely. But
if you ask me if this is the beginning of the end? No, it
isn't," said Puwadol Lapudomsuk, a senior strategist at Asia
Plus Securities, adding he expected a gradual fall, not panic
Kosin Sripaiboon at UOB KayHian Securities felt the same.
"Selling will be coming from both sides, foreign and local
investors, but I don't really think panic selling will be as
bad as when the former government imposed a 30 percent capital
control measure," he said, referring to the record one-day fall
of 14.8 percent in reaction to capital controls in December
Bourse chief Patareeya Benjapolchai remained calm. "The
circuit breaker system will work automatically if the market
falls sharply to a certain point but right now everything is
manageable," he said.
The baht THB=TH was weaker, in line with other Asian
currencies, at 34.49 per dollar in late trade after hitting a
one-year low of 34.52.
The Bank of Thailand said it had intervened in the market
to support the currency.
"The baht had weakened rapidly this morning, so we had to
take care of it. If it is volatile, we will step in," Deputy
Governor Atchana Waiquamdee told reporters.
Investors in Thailand's dollar-denominated bonds have taken
fright at the political crisis, with anti-government supporters
occupying the prime minister's official compound, but domestic
bonds continued their recent strong run.
"Political noise reduces the attractiveness of risky
alternatives to safe-haven government bonds," ING analyst Tim
Condon said in a report.
The 10-year domestic bond yield TH10YT=RR shed 5 basis
points to 4.45 percent bid. It has fallen around 180 bps from a
June peak as investors took the view that both inflation and
interest rates have peaked.
But five-year credit default swaps (CDS) THAILD5UA=GFI --
the cost of protecting against a default in Thailand's
dollar-denominated debt -- widened by as much as 10 bps to 150.
The CDS later tightened to 146 bps, a Hong Kong trader
said, meaning it would cost investors $146,000 to protect
against $10 million of sovereign debt annually for five years.
On the stock market, shares in national carrier Thai
Airways (THAI.BK) bounced back to end 4.4 percent higher at
14.30 baht after hitting a record low of 13.30 baht.
The national carrier's president said passengers were
cancelling due to the unrest, but the share was helped by late
bargain-hunting and another drop in fuel prices, dealers said.
Airports of Thailand (AOT.BK) was down 1.3 percent at 37
baht. Several airports were closed by protests at the end of
last week but have now reopened.
Among big losers, top energy firm PTT (PTT.BK) fell 4.6
percent and market leader Bangkok Bank (BBL.BK) dropped 3.4
> More stories on Thailand's political turmoil
(Additional reporting by Rafael Nam in Hong Kong, Kevin Yao in
Singapore, Ploy Chitsomboon and Viparat Jantraprap in Bangkok;
Editing by Alan Raybould)