Dec. 20 (Bloomberg) -- Emerging-market stocks rallied from the biggest drop in three months after Asian nations said they won't impose capital controls, less than 24 hours after Thailand's failed bid to limit foreign investment.

Thailand's SET Index jumped 11 percent in Bangkok after the government exempted equity from restrictions that had sent the benchmark on its biggest slide in 16 years yesterday, wiping out $23 billion in market value. Stocks in South Africa, South Korea, Malaysia and Russia rose, helping push the Morgan Stanley Capital International Emerging Markets Index, which tracks 25 markets, 1.3 percent higher.

Central banks in Malaysia, the Philippines and Indonesia responded to the rout in Thailand by saying they wouldn't use capital restrictions to control their currencies. That helped restore confidence after Thailand rescinded its rule.

``It's positive for emerging markets because it shows governments in this asset class are now quick to change unpopular decisions,'' said Matthias Siller, who helps oversee $6 billion in global emerging-market assets at Baring Investment Service in London. ``That wouldn't have been the case 10 years ago.''

PTT Pcl, Thailand's largest energy company, had its biggest one-day gain ever. PT Telekomunikasi Indonesia, the largest publicly traded company in Indonesia, and Tenaga Nasional Berhad, the Malaysian market's most valuable stock, advanced. Mol Nyrt., Hungary's largest oil company, led gains among energy producers after crude advanced in New York.

In Latin America, markets had reacted to Thailand's rule reversal yesterday. Peru's main stock index fell for a second day from a record after gaining every previous session this month. Mexico's Bolsa benchmark dropped for a second day.

Annual Gain

The MSCI emerging markets index has gained 25 percent this year even after sliding 25 percent during May and June on concern rising global interest rates would hurt demand for raw materials.

Thailand's SET, which fell as much as 19.5 percent yesterday, today recouped almost two-thirds of the loss. The measure posted its biggest gain since February 1998.

The country's reputation with investors has suffered long-term damage following a Sept. 19 coup and this week's on-again-off-again capital controls, said Jorry Noeddekaer, who helps manage $1.4 billion of Asian stocks at New Star Asset Management Ltd.

Thai Central Bank Governor Tarisa Watanagase told reporters two days ago that investors based abroad would be able to invest just 70 percent of funds transferred to Thailand, and only recoup all of their funds if they kept the money in the country for more than a year.

The rule said any withdrawals within a year would be penalized 10 percent of the original investment. Thailand was the country that touched off an emerging-market slump in 1997-98 by devaluing its currency, the baht.

`Think Twice'

``These countries are going to think twice'' given yesterday's market reaction, said Mark Mobius, who oversees $30 billion in emerging-market stocks at Templeton Asset Management Ltd. Thailand's latest move ``is positive. It does indicate they are flexible and they are willing to admit errors and change.''

PTT, Thailand's largest company by market value, gained 16 percent, bouncing from yesterday's 17 percent slide. Bangkok Bank Pcl, the country's biggest lender, climbed 7.8 percent after plunging 16 percent.

``Yesterday was a valuable lesson in telling the emerging markets what not to do,'' said Raymond Tang, who manages $1.7 billion as chief investment officer of CIMB-Principal Asset Management Bhd. in Kuala Lumpur. Other markets won't follow ``unless they want to send the economy back 10 years.''

Indonesia, Malaysia

Indonesia's Jakarta Composite Index gained 1.7 percent, recouping some of yesterday's 2.9 percent slide, which was the measure's biggest drop since June 13. PT Bank Mandiri, the nation's largest lender, climbed 2.7 percent, after having slumped 3.5 percent yesterday.

Malaysia's Kuala Lumpur Composite Index added 1.5 percent, following a 2 percent drop yesterday, while the Karachi Stock Exchange 100 Index added 1.3 percent in Pakistan, rebounding from yesterday's 2.8 percent slump. South Korea's Kospi index closed 1 percent higher today.

The declines yesterday ``definitely'' provided an opportunity to buy stocks at a discount, said Templeton's Mobius, who hasn't added any shares yet. Still, ``our guys are out there looking for opportunities constantly.''

Asian stocks and currencies gained this year as growth in the region's emerging markets drew funds from overseas investors. Funds investing in shares of developing countries attracted $1.65 billion more than they lost from redemptions in the week ended Dec. 13, figures from Emerging Portfolio Fund Research showed. The net fund inflow was the most since the weekly period ended May 10, when they drew $2.86 billion.

Overseas Investors

Overseas investors yesterday sold 25.1 billion baht ($699 million) more of Thai stocks than they bought after the central bank introduced the baht lockup requirements, the largest sell-off since at least Jan. 4, 1999, according to data compiled by Bloomberg.

Outside Asia, Hungary's BUX Index jumped 1.4 percent, after slipping 2.3 percent yesterday. South Africa's FTSE/JSE Africa All Share Index gained 1.4 percent to a record.

Russia's RTS Index advanced 1.4 percent. Net capital inflow into Russia may exceed $30 billion this year, Interfax reported, citing Deputy Prime Minister Alexander Zhukov. Foreign investment grew 12.9 percent in the first 11 months, the news service said.

PT Telekomunikasi, the largest telephone company in Indonesia, added 1 percent. Tenaga, Malaysia's biggest power producer, jumped 4.6 percent. Mol, the largest publicly traded Hungarian company, advanced 1.3 percent.

Crude oil for February delivery rose 18 cents, or 0.3 percent, to $63.64 a barrel at 3:52 p.m. on the New York Mercantile Exchange amid speculation a U.S. government report today will show the nation's inventories declined for a fourth week.

To contact the reporter on this story: Darren Boey in Hong Kong at dboey@bloomberg.net; Alexander Ragir in New York at aragir@bloomberg.net

Last Updated: December 20, 2006 16:02 EST