(Changes headline, revises market figure in lead, adds analyst, trader comments in paragraphs 4 to 6, context on king's health)
BANGKOK, Oct 10 (Reuters) - Thailand's main stock index tumbled as much as 3.6 percent on Monday and the baht fell to more than two-month lows, a day after the palace said that 88-year-old King Bhumibol Adulyadej's health was in an unstable condition.
The Stock Exchange of Thailand sank in opening trade by the most in nearly a month. By 0420 GMT it was down 2.9 percent.
The Thai baht fell to as low as 35.065 to the dollar, down nearly half a percent on the day and its weakest since July 26. By 0400 GMT it was around 34.99 to the dollar.
"Markets tend to react more out of news from the royal household, more than news on political upheaval that we've had in the past," a Singapore-based economist, who declined to be identified because of the sensitivity of the matter, told Reuters.
"Over the last few weeks the health updates have been coming out with more frequency and that's showing up in the currency and stock market," he added.
A Bangkok-based trader, who also declined to be identified, told Reuters that the king's health was a concern for domestic and foreign investors.
Thailand's king, the world's longest reigning monarch, is in an unstable condition after receiving haemodialysis treatment, the palace said in a statement late on Sunday. Doctors gave him some medicine and put him on a ventilator to bring his blood pressure back to normal, it said.
News about the king is closely monitored in financial markets in Thailand, where he is widely revered and where he is seen as arbiter in politics.
The palace had said on Oct. 1 that the king's condition had improved following a lung infection. He has been treated in recent months for hydrocephalus, an excessive build-up of fluid on the brain.
Thailand has weathered more than a decade of unrest including military coups in 2006 and 2014 and a wave of deadly bombings in August that killed four Thai tourists and injured dozens, including foreigners. (Reporting by Amy Sawitta Lefevre, Pairat Temphairojana, and Wirat Buranakanokthanasan; Editing by Amy Sawitta Lefevre and Kim Coghill)