- Emerging market stocks, bonds and currencies all fell on Tuesday after a coup in Thailand and riots in Hungary unnerved markets, but investors in Europe and the Americas were cautious awaiting reaction from Asian markets.

On Tuesday the Thai army took control of Bangkok without firing a shot and announced a commission to reform the constitution, despite the prime minister's declaration of a state of emergency from New York while attending the U.N. annual General Assembly.

A benchmark index for emerging markets stocks, the ISHR MSCI Emerging Markets slid more than 2 percent on the declaration of a state of emergency by Thai Prime Minister Thaksin Shinawatra after tanks were seen surrounding Government House in Bangkok.

The Thai stock exchange announced it would open as usual on Wednesday but said it would halt trading if the main index fell more than 10 percent, clearly expecting investors to sell.

"(A sell-off) will depend on the Asian markets and any more risk aversion being manufactured by the action in the baht. You will see it trickle down into the Asian markets and then into Latin America probably overnight," said Enrique Alvarez, emerging markets strategist at IDEAglobal.

The Thai baht staged its largest one-day fall in three years after the news, which led to a broad-based decline in a number of Asian currencies.

The dollar rose to 37.900 baht from 37.280 baht after the news, more than 1.3 percent on the day in the largest daily rise since October 2003.

"If you do see a spillover reaction into other Asian currencies you should see it as an opportunity and buy into it," said Marios Maratheftis, foreign exchange strategist at Standard Chartered in London, adding that the baht will come under pressure in coming days but once the political situation stabilizes the currency is likely to recover.

"I wouldn't call for a right-out shorting of baht but rather I see it as an opportunity in the crosses. For now, Thai baht against Asian crosses could be an interesting idea," Maratheftis said.

In emerging debt markets, Brazil's global bond due 2040, considered the emerging market benchmark paper due to its high liquidity, slipped to be bid at 130.125 and to yield 6.490 percent.

Thailand has only $2.1 billion in dollar-denominated government debt and the majority of the country's external debt matures between 2007 and 2008, analysts said.

"There is a risk of deterioration in the region because of the geopolitical issue," said Felipe Brandao, emerging markets director with Arkhe brokerage in Sao Paulo. "But this may be only a first impact that will be absorbed by the market."

RIOTS IN HUNGARY

Earlier on Tuesday, riots erupted in Budapest where over 150 people were hurt following revelations that Prime Minister Ferenc Gyurcsany and his Socialist party lied about Hungary's budget to win a general election in April.

The Budapest stock market's main index lost 1.21 percent, cutting in half earlier losses while Poland's main index fell 0.87 percent on the day. Prague's main stock index cut its losses but ended down 1.03 percent.

The forint lost ground against the euro, falling to a weekly low of 274.75 before gaining back some ground to trade off 0.86 percent on the day at 273.35.

Meanwhile Prime Minister Gyurcsany rejected opposition calls to quit and vowed to press on with tough economic reforms.

He won April's election partly on a promise of tax cuts but has since imposed tax hikes and benefit cuts worth $4.6 billion in 2007 alone to curb Hungary's budget deficit which will surge to 10.1 percent of gross domestic product this year.

Benign U.S. inflation data reported on Wednesday however helped cushion outflows from emerging market stock and bond funds, as the economic data bolstered investors' expectations for the Federal Reserve to leave U.S. interest rates unchanged, meaning emerging markets would still offer attractive yields.