Thai coup sends US stocks down

Stocks dropped on Wall Street today after Thailand’s military launched a coup against the country’s prime minister.

While they recovered most of their losses in late afternoon trading, major indexes all closed lower.

Traders watching Thailand closely are certain to remember how trouble in the kingdom had worldwide implications in the past: The Asia currency crisis that erupted in 1997 began with the devaluation of the Thai baht, then snowballed into a currency crisis in emerging markets around the world.

The baht fell sharply today, as did Brazil’s real, which also tumbled in the ’97 crisis.

Thailand, usually one of South East Asia’s most stable countries, has been in a state of political flux this year after massive rallies forced Prime Minister Thaksin Shinawatra to dissolve Parliament.

Thaksin, who was in New York attending the United Nations General Assembly, has faced calls to step down amid allegations of corruption and abuse of power.

The news hit Wall Street on a day US stocks had been drifting lower following a sharp drop in the pace of housing starts in August.

Housing starts fell 6%, twice as fast as expected. New housing construction notched up its fifth decline in six months, hitting its lowest point in more than three years.

Stocks, meanwhile, are coming off a strong summer rally, poised near old record highs. “Now we’re at the top of the mountain saying, ‘Is this as nice an environment as we thought?’,” said Jon Brorson, head of growth equities at Neuberger Berman in Chicago.

The Dow Jones industrial average fell 14.09, or 0.12%, to 11,540.91.

Broader stock indicators were also lower. The Standard & Poor’s 500 index dropped 2.87, or 0.22, to 1,318.31, and the Nasdaq composite index fell 13.38, or 0.60%, to 2,222.37.

The index was hurt by a 11% drop in Yahoo and what investors called “the flight to quality”, a tendency to sell riskier tech stocks heavily during political crises.