Will the crisis spread?

Where next? was the first question investors were asking themselves last night, as the chaos in Argentina's financial system spiralled out of control.

The memory haunting the markets is the devaluation of the Thai baht in June 1997 which led to a chain reaction of currency collapses and bankruptcies engulfing the south-east Asia region.

But while Thailand's problems quickly spread to its neighbours, analysts said other Latin American economies were so far insulated from the worst effects of Argentina's woes.

Investors have become more sophisticated in analysing risks and other Latin American economies are still regarded as relatively robust.

"Argentina is a bit of a topic in the market. So far there's little spillover and the view is that it's an Argentine problem rather than becoming a Brazilian or Mexican problem as well," said Sonja Hellemann, foreign exchange strategist at Dresdner Kleinwort Wasserstein in Frankfurt.

Chilean markets stumbled in early trading but were not expected to lose much more ground, analysts said. But investors were demanding a slightly higher risk premium to buy Russian debt - Moscow nearly brought financial markets to halt three years ago when it defaulted on its loans.

Economic fundamentals rather than geography are likely to determine the casualties from Argentina's collapse.

The main victims will be other indebted emerging economies.

South Africa was the first to show signs of strain yesterday, with the rand crumpling to the latest in a series of record lows. Investors were also nervously eyeing central European economies like Poland and the Czech republic which have relatively high levels of public debt.

Officials from the International Monetary Fund were insisting last night that there were no signs of a full-scale crisis developing in the emerging markets. But the IMF will be keeping a close eye on the markets over the next few days.