A scare over the health of Thailand's king has delivered a blunt lesson to investors about political risk in a country where many see the revered monarch as the sole hope of reconciliation in an increasingly fractured society.

The palace tried to combat rumours about the 81-year-old king's health with a statement on Wednesday evening, saying his condition was improving after almost a month in hospital with fatigue and breathing problems.

By then the markets were close to panic, falling 8 per cent yesterday on top of a similar drop the day before.

Although barred by the constitution from playing any overt political role, King Bhumibol Adulyadej commands almost unquestioned moral authority in a country where many feel they have been betrayed by the other institutions of state.

He is the world's longest reigning monarch and has used his personal standing to intervene when politicians or generals have flirted with the more brutal reaches of authoritarianism.

For 63 years, through 10 successful coups, 16 constitutions and 27 prime ministers, he has remained the one neutral figure. Many Thais worry chaos will ensue when competing cliques slip the leash that has restrained them for so long.

The stock market has become a barometer of the fear that many Thais have for the future.

“Whatever is happening with his health, there is the perception of a storm brewing and that at some point it is going to burst,” said one analyst who declined to be named because of the sensitivity surrounding the royal family in Thailand.

“There are a lot of people who are trigger-happy about this event: they are afraid that when it happens the market is going to fall 10 or 20 per cent,” he said.

Thailand.