Equity markets worldwide plunged yesterday on fears of knock-on effects from the "fiscal cliff" and rising tensions in the euro-zone debt crisis.
The Thai market was also hit by internal factors, with investors nervous about a possible court verdict for the third-generation (3G) auction.
The SET was highly volatile in line with global markets.
It fell by 13.72 points before mid-day session before rebounding to close at 1,274.02, down by 5.27, in trade worth 35.4 billion baht.
Investors reacted to the prospects of drawn-out negotiations over the looming US fiscal cliff _ involving deep spending cuts and huge tax hikes by Washington to offset a gaping budget deficit _ by shedding riskier assets on uncertainty over the outcome.
Sukit Udomsirikul, the managing director of Maybank Kim Eng Securities (Thailand), said a local political rally scheduled for Nov 24 should be watched closely, as it could become a major factor driving political risk.
Elsewhere in Asia, China's Communist Party unveiled its new leadership line-up yesterday for the world's second-largest economy, with Vice President Xi Jinping taking over from outgoing President Hu Jintao as party chief.
However, the Shanghai Composite Index sank 1.22% after the Financial Institution Committee announced bad debt in the banking system had increased by 22.4 billion yuan (110 billion baht) in the third quarter, reaching 479 billion.
Japanese Prime Minister Yoshihiko Noda will dissolve the lower house of parliament today for a general election on Dec 16, and Tokyo's Nikkei rose by 1.9% on the news to close at 8,829.72 points.
Analysts expect the opposition party will win the election and set aggressive stimulus policies.
Mr Sukit said local investors yesterday were speculating in telecommunications stocks ahead of an Administrative Court ruling on a proposed injunction delaying the granting of 3G licences.
However, they were playing it safe by flocking to high-dividend stocks such as AIS and Shin Corporation.
Mr Sukit said sentiment for the fourth quarter is not very lively, as many funds slow their investments due to the lengthy holiday periods, with some already closing their investment portfolios.
"The SET index will remain volatile until year-end," said Mr Sukit.