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Acceleration time histories, recorded during the destructive 26 December 2003 (Mw 6.5) Bam earthquake, have been simulated using the stochastic method for finite faults. In this method, the ground motion amplitudes are simulated as a summation of stochastic point sources. An inhomogeneous slip-distribution model, derived from previous studies is used to asses the source effect. It was found that the overall agreement between simulated and observed waveforms and spectra is well satisfied. The calibrated model is then used to simulate ground motion for the most damaged areas where strong-motion data are not available. This result clearly shows that source effect is capable of explaining the main features of the damage distribution pattern of the 2003 Bam earthquake, especially why eastern part of Bam city suffered the heaviest damage