Finance minister Tarrin Nimmanahaeminda was so emboldened by the developments that he declared last week Thailand might even post one per cent growth next year against a contraction of seven per cent seen for 1998, external factors permitting.

But analysts said the government's bullishness could be misplaced since the recent jump in Thai stocks and the baht was being driven by temporary factors rather than improved fundamentals.

"It is hard to say if all this is sustainable when we go back to the fundamentals," said Thanomsri Fong a runrung, economist at Merrill Lynch/Phatra Securities.

"We still have to see through Thai corporate restructuringand bank recapitalisation. Only then can we say this is a sustainable Thai recovery," she added.

Bang Kok markets had benefitted in the short term from Malaysia's troubles, analysts said, as investors had parked their money in Thailand following the arrest of former deputy premier Anwar Ibrahim and before Kuala Lumpur's currency controls become effective on October 1.

"Some money came in from Malaysia because of capital controls there and because hedge funds reduced their weightings in Malaysia. We are unsure how long it will be parked in Thailand," said Thanomsri.

Meanwhile, key indicators of economic growth such as consumption, manufacturing and private sector indices had remained depressed since last year, making it hard to believe the current spurt would last.

"It remains to be seen if rate falls alone can provide much boost. The growth drivers must be consumption, manufacturing and exports," said the head of an institutional research at SG Asia Credit Plc Sriyan Pietersz.

"Things are lookingbetter with a relative build-up of confidence in Thailand, supported by a stable baht, falling inflation, a current account surplus and some stabilising domestic indicators," he added.

But Pietersz warned that Thailand was operating in a negative emerging markets environment and to base signs of recovery on improvements in the domestic market alone could be risky.

"This could all be a short-term affair. If you have a worsening of the global economy, then Thai export prospects could also be under threat and that would hurt any recovery in the manufacturing sector," he said.

Analysts attributed much of the recent liquidity boost to government injections of rescue funds obtained from the World Bank, International Monetary Fund and the Asian Development Bank, rather than because of expanded lending by ailing local banks.

Money market rates have plummeted to around 7-8 per cent from a high of 23 per cent in March while lending rates have begun to ease gradually from around 15.25-15.50 percent now.

Thebaht has broken through resistance at 40 per dollar and is now trading at around 39 per dollar, a rise attributed by money market dealers and analysts to equity investment by foreign hedge funds.

Analysts said Thai banks, hit by trillions of baht in non-performing loans and in the process of restructuring debt as the country rides out its worst crisis in decades, are still fearful of lending.

They have been highly selective and this has hit the funds-hungry manufacturing sector badly.

Consolidating Thai banks are also struggling to recapitalise, with relatively little foreign interest in them. "It's still too early to get optimistic about Thailand. Many fundamentals have not changed. For example, exports have not grown, the level of domestic demand is low and manufacturing activity has not picked up," said the head of an international financial agency based in Thailand.

"Just because there is good news on the stock market and the baht has perked up is not a signal that recovery has begun," he said,declining to be identified.

"But when there are so many uncertainties, one should feel satisfied that at least the government is on the right track in taking tough measures to spark a recovery," he added.

Thailand, with the help of the IMF has been dispensing bitter medicine for its wounded finance sector.

"With the emerging market and world economy contracting, Thailand as a small player can get ahead of the pack if it becomes more competitive in its key sectors," he said.