BANGKOK (Reuters) -- Thai shares bounced back on Wednesday from their biggest sell-off in 16 years after the government back-pedaled on currency controls, but the abrupt policy U-turn shattered confidence in its economic chiefs.

The stock market, which plunged 14.8 percent on Tuesday - its biggest one-day drop since Iraq invaded Kuwait in 1990 - ended 11.2 percent higher after the army-appointed government exempted stock buying from controls on short-term currency inflows just a day after imposing them.

Elsewhere in Asia, Hong Kong's Hang Seng gained 1.45 percent and the HSCC Red Chip fell 1.76 percent. Japan's Nikkei 225 gained 1.40 percent, while China's Shanghai Composite gained 0.38 percent.

The stunning about-face in Thailand in the wake of a foreigner-led rout that knocked $23 billion off Asia's worst-performing bourse this year rekindled memories of the 1997/98 Asian financial crisis and brought howls of derision from analysts.

"The one thing worse than an incompetent central bank is an incompetent central bank that flip-flops," said Bratin Sanyal, head of Asian equity investments at ING in Hong Kong.

Domestic investors were equally scathing in their criticism of the technocrats appointed by the military leaders who ousted Prime Minister Thaksin Shinawatra in a Sept. 19 coup.

"I'm stunned. They are truly incapable. Please, get the hell out," said 35-year-old businessman Chan Pornpipatkul.

The rally, spearheaded by big-cap stocks such as oil-and-gas firm PTT PCL and Bangkok Bank - owned in part by the foreigners who stampeded for the exit on Tuesday - was the market's biggest one-day jump since February 1998.

But most of the buyers were Thai, as international investors continued their retreat, selling a net $81 million of shares to go with the $700 million they dumped on Tuesday.

"Investor hell"

Despite its recovery, the index was still 5 percent lower than when the Bank of Thailand (BoT) announced on Monday a drastic assault on the speculators it blamed for catapulting the currency 16 percent higher in 2006 against the dollar.

The International Monetary Fund (IMF), describing the baht measures as "too strong and far-reaching," welcomed the decision late on Tuesday to lift the restrictions for equity investments.

But by then Thailand's reputation in the eyes of international investors was in tatters.

IDEAglobal headlined a research note "Tourists' haven, investors' hell," as analysts poured scorn on Finance Minister Pridiyathorn Devakula and his successor as central bank chief, Tarisa Watanagase, both appointed after the coup.

"They are proving themselves to be very unprofessional. Their actions are very irresponsible. They have totally lost credibility," said Catherine Tan, head of Asia Emerging Markets at Forecast in Singapore.

"I don't see foreigners returning to Thailand any time in the near future. Markets now have no confidence in the government."

Tarisa, appointed just two months ago, agreed with her former boss that equity investments should have been exempted from the rules and admitted that the sell-off had taken them by surprise.

"We had to reverse the measures as the market reacted more than we expected," she told reporters.

ABN AMRO cut its investment rating on Thailand to "underweight" and questioned how the economy was being run in the aftermath of the coup, Thailand's 18th in 74 years.

"Policy decision-making seems to be at odds with the workings of capital markets," the investment bank said.

Intervention questioned

The sell-off sparked brief fears of a repeat of the 1997/98 Asian financial crisis, triggered by a baht devaluation, and prompted falls in stock markets in the region, though they also recovered on Wednesday.

Bond yields were largely steady in Thailand's secondary market on Wednesday, with those on the long end falling slightly after central bank intervention, dealers said. Yields had jumped 20-40 basis points across the board on Tuesday.

"Why did they intervene in the bond market today? They should have known bond markets would fall after the baht measure," Forecast's Tan said.

The baht, the strongest Asian currency against the dollar this year, was trading around 35.8 per dollar, a decline of around 2 percent from Monday's 9-1/2-year high that triggered the BoT's leap to the defense of exporters.

The curbs were designed to rein in the baht's rise by forcing speculators to keep their money in the country for at least a year or face a hefty 10 percent penalty.

Trade-related deals and repatriation of funds by Thai residents were excluded. Pridiyathorn added equity-related transactions to the exclusions late on Tuesday.

Exporters had welcomed the curbs because a rising baht makes their goods less competitive on world markets and could reduce earnings repatriated from overseas.