The abrupt change came after Bangkok's benchmark SET index tumbled 15% overnight.

The Thai central bank on Monday unveiled measures that would lock up 30% of new foreign currency deposits for a year and said the measures would become effective Tuesday. The aim of the measures was to curb speculative inflows that have lifted the Thai currency, the baht, by about 17% against the U.S. dollar this year.

Finance Minister Pridiyathorn Devakula said that the controls would remain on foreign investments in bonds and commercial paper but would not apply to equities.

"The government has now reversed the decision after seeing the effect," said Forex.com, a division of Gain Capital.

The Thai sell-off spilled over into other markets in the region overnight and raised the specter of another Asian financial crisis. It was a run on the baht that triggered the 1997 meltdown across the region, roiling financial markets around the world.

Analysts and even local politicians had criticized the move, the first capital controls to be attempted in Asia since 1998.

"The Thai authorities could have attempted to slow the appreciation pressures from speculative capital flows ... by other means -- for example, by lowering interest rates," said Thomas Harr, analyst at Danske Bank.

The measures were "a step in the wrong direction and could have [had] a long-term negative impact on the Thai market, as there could be a loss of confidence in the Thai authorities' ability to control the economy," he said