Sept. 21 (Bloomberg) -- Thailand's baht rebounded from the biggest loss in almost three years as investors bet this week's coup will break a political deadlock that stalled public works spending and slowed economic growth. Stocks pared early declines.

The baht rose the most in more than four months after army chief Sondhi Boonyarataklin took power without bloodshed and pledged to hold elections in October 2007. Central bank Governor Pridiyathorn Devakula said the authority hadn't bought baht to support the exchange rate and currency trading is back to normal.

``This represents a buying opportunity as it removes the political roadblock from the economy,'' said Richard Yetsenga, a currency strategist at HSBC Holdings Plc in Hong Kong. ``The coup is as calm as you could possibly expect.''

The baht rose 0.9 percent to 37.44 per dollar as of 5:07 p.m. in Bangkok, after yesterday dropping 1.4 percent, the biggest loss since October 2003. HSBC expects the currency to reach 37 by the end of the year, Yetsenga said.

Parliament has been suspended since February amid an election dispute, blocking 1.7 trillion baht ($45 billion) in spending on roads, bridges and power plants.

Thai stocks initially slumped after the market opened today, following the closure of banks, exchanges and government offices yesterday. The country's benchmark SET stock index closed down 1.2 percent, paring a decline of as much as 4.2 percent.

`Short-Lived'

King Bhumibol Adulyadej, in a royal order yesterday, confirmed Sondhi as the head of a new interim government after armed forces ousted Prime Minister Thaksin Shinawatra. The government was tainted with corruption and cronyism, Sondhi said yesterday in a live television broadcast.

Thaksin, who was in New York when the coup happened, arrived in London around 5:45 p.m. U.K. time yesterday, according to Sky News.

Ackaratorn Chularat, president of the Supreme Administrative Court, may be named Thailand's interim prime minister by the arm forces, newspaper Krungthep Thurakit reported on its Web site, citing an unidentified military official.

The baht fell as far 37.82 in early trade after the stock market dropped on concern global investors are selling equities.

``The coup raises the risk premium for the Thai market and that's why investors are selling stocks,'' said Hideki Hayashi, a currency strategist in Tokyo at Shinko Securities Co., a unit of Japan's second-largest lender. ``Selling will be short- lived.''

Buying Opportunity

The coup in Thailand is unlikely to affect markets like in 1997, said Malaysian central bank Governor Zeti Akhtar Aziz. The devaluation of the baht in 1997 triggered a collapse in currencies and stock markets across the region, resulting in the Asian financial crisis. This week's coup was Thailand's 18th since the country changed to a constitutional monarchy in 1932.

Mark Mobius, who oversees about $30 billion in emerging market equities at Templeton Asset Management, said falling asset prices may offer an opportunity to buy.

``We're not that concerned because we've seen this before,'' he said in an interview from Shanghai yesterday. ``If prices come down substantially, we would be buyers.''

The ``limited'' drop in the stock index today showed overseas investors remain confident in the country after the coup, central bank's Pridiyathorn told reporters in Bangkok.

``Investors are satisfied with the peaceful way the changes happened,'' he said.

Transfer Power Quickly

Thailand's $188 billion economy is forecast to grow at the slowest pace in five years. It may expand 4.2 percent this year, from 4.5 percent in 2005, the National Economic and Social Development Board said June. 5.

The nation had a caretaker government unable to enact new policies since Thaksin dissolved Parliament in February. A snap election held in April was boycotted by the country's three biggest opposition parties and later annulled by a court.

Criticism of 57-year-old billionaire Thaksin has mounted since his family's sale in January of its 49.6 percent state in Shin Corp., a holding company, to investors led by Singapore's state-run Temasek Holdings Pte for a tax-free $1.9 billion.

``Political uncertainty was one of the main things that prevented people from going into the Thai market,'' said Uwe Parpart, head of fixed income and currency research for Asia at Cantor Fitzgerald & Co. in Hong Kong. ``With that removed, it certainly is a buying opportunity.'' The baht may rise beyond 37.20 in a few days, he said.

Threadneedle Investments, a London-based money manager owned by American Express Co. that oversees more than 70.4 billion pounds ($133 billion) of assets, said it may add Thai stocks.

``Without the removal of Thaksin, the instability could have dragged on for a long time and there could have been an escalation in protests and violence,'' said Maxine Cuffe, an emerging markets fund manager at the group. ``Ideally, the military will transfer power quickly.''

To contact the reporter on this story: Andrew J. Barden at barden@bloomberg.net

Last Updated: September 21, 2006 06:13 EDT