Thai stocks and the local currency slumped on Tuesday amid heightened uncertainty after deadly bomb blasts rocked the country's capital Bangkok late Monday.
The benchmark SET index opened down 2.7 percent at 1,408, while the Thai baht fell to its weakest level in more than six years. The baht lost as much as 0.5 percent, falling to 35.55 against the U.S. dollar, its lowest since April 2009.
"Struggling after a string of soft economic data, Thai currency woes were compounded last night following the surprise yuan devaluation last week and now, a potential hot spot, which just adds to the negatives," said Stephen Innes, senior trader at the financial technology company, OANDA.
"If the bomb is indeed terrorism related it could rattle investor confidence and we could easily see the baht leg higher, particularly with the U.S. dollar price action beginning to reflect the possibility of a September Fed lift off," he said.
A slowdown in China and concerns over an imminent increase in interest rates by the U.S. Federal Reserve have sent investors scurrying out of many emerging markets in recent weeks. Higher interest rates in the U.S. are likely to dim the appeal of more risky emerging market assets such as the Thai baht and stocks.
At least 22 people, including eight foreigners, were killed and more than 120 wounded after a bomb exploded outside a religious shrine in central Bangkok on Monday evening in an attack the government called a bid to destroy the economy.
Thai authorities have launched an urgent investigation to determine who was behind the attack. So far, no one has claimed responsibility. The U.S. State Department said overnight that it was too soon to tell if the blast was a terrorist attack.
On Tuesday, Reuters, quoting a police officer, reported that a further small explosive devise had been thrown from a bridge in central Bangkok. No injuries were reported.
The attack poses a fresh threat for an economy that is already slowing amid weaker private consumption and investment growth.
On Monday, Thailand reported that its gross domestic product (GDP) expanded by 2.8 percent on year in the second quarter, down from 3.0 percent in the previous three months.
"Yesterday's terrorist attack in Bangkok risks adding to the economic uncertainty that is holding down investment and GDP growth," said Tim Condon, head of Asia research at ING.
The tourism sector, which accounts for about 10 percent of Thailand's GDP, in particular is expected to suffer a blow from the incident as governments begin to issue travel warnings. Hong Kong has advised its citizens to avoid non-essential travel to Thailand, while the U.S. has asked its nationals to stay clear of the effected area and monitor local media for updates.
"We are closely monitoring the situation and we are liaising closely with local authorities to gather information to determine whether any U.S. citizens were affected by the explosion. Thai authorities are actively investigating the explosion," the U.S. embassy said in a statement to CNBC.
Concerns were reflected in tourism-related shares, including hospitality group Minor International, Nok Airlines, Bangkok Airways and Airports of Thailand, which fell between 5 and 8 percent on Tuesday.