Protesters block police in deepening Thai crisis

BANGKOK (Reuters) - Protests and blockades in the provinces on Monday and a grenade attack against a politician deepened fears of a civil conflict in Thailand after the prime minister rejected demands by anti-government protesters.

Protesters fortified a sprawling encampment in Bangkok's main shopping district and urged supporters in northern provinces to block convoys of police and soldiers from coming into the capital, adding to a growing sense of lawlessness.

Prime Minister Abhisit Vejjajiva on Saturday rejected a proposal by the protesters to call elections in 30 days and hold a vote 60 days later, dashing hopes for an end to a seven-week standoff that has paralysed Bangkok and killed 26 people.

Brave bargain hunters bought Thai stocks, pushing the local index up 1.6 percent to outperform most Asian markets, but brokers described the rise as fragile and said the risk of violence would likely make trading choppy in days ahead.

Chris Wood, an analyst at brokerage CLSA, said on Monday he had cut his allocation of Thai stocks to zero. "All evidence still points to a potentially inflammatory stalemate in Thai politics," he said in a note to clients.

Underlining those concerns, a grenade was hurled late on Sunday at a police post near the home of Banharn Silapa-Archa, chief adviser to the Chart Thai Pattana Party, wounding at least 11 people, a medical centre said.

Banharn is a former prime minister who has switched allegiance regularly throughout his career. Protesters have called for his party and other governing coalition partners to abandon Abhisit's Democrats to force fresh elections.

ACTS OF DEFIANCE

The mostly rural and urban poor "red shirts", responded to their leaders' call for resistance with a half-dozen blockades in their northern and eastern strongholds, another headache for the Oxford-educated Abhisit, who faces pressure from a traditional ruling class to take a hard line against the protests.

Hundreds of red shirts set up at least three blockades in provinces surrounding Bangkok to prevent security forces from coming into the city. Similar action was taken in northern Phisanulok province and two other northeastern provinces.

About 100 red shirts demonstrated outside provincial police headquarters in the eastern province of Chachoengsao, aiming to prevent police from being sent to Bangkok,

Red shirts say they thwarted a military crackdown on their encampment in central Bangkok after supporters turned out in force on Sunday night. The army chief has said repeatedly a crackdown would do more harm than good.

Any attempt to disperse them risks heavy casualties and the prospect of clashes spilling into high-end residential areas, which are slowly emptying of residents and workers as shops close and apartment building owners tighten security.

"The government cannot afford another round of failure and embarrassment and it's going to be difficult to go in and disperse protesters who barricaded themselves into a small area without heavy casualties," said Prinya Thewanaruemitkul, a law lecturer at Thammasat University.

"Stalemate will likely continue like this for some time with several potential flashpoints. Both sides will continue to threaten each other but total victory on either side is hard to imagine in the near term."

Protest leaders have told supporters to take off their red shirts to be less visible to security forces in any crackdown. A rival protest group known as the "yellow shirts" said they will gather on Thursday outside a heavily fortified army barrack where Abhisit has a temporary office to urge authorities to disperse the red shirts.

"Now there is a state within a state," Suriyasai Katasila, one of the movement's leaders, told Reuters on Monday. "It's anarchy and the government needs to do something to end that."

The "yellows shirts" are well versed in street protests themselves, besieging the prime minister's office for three months and taking over Bangkok's airports for eight days in 2008.

The crisis is starting to carve into Thailand's economy, Southeast Asia's second-biggest. Thailand's 2010 economic growth forecast of 4.5 percent could be cut by 0.64 percentage point, if the anti-government protests are prolonged for up to three months, a government spokesman said on Monday.

Army chief Anupong Paochinda acknowledged on Sunday some retired and inactive officers had joined the protest movement, but sought to play down talks of a split in the armed forces.

Analysts say a well-armed rogue military element led by retired generals backs the protesters and is allied with the red shirt's de facto leader, former premier Thaksin Shinawatra, who was ousted in a 2006 coup.

Analysts and diplomats say both sides want to be in power in September during an annual reshuffle of the military, an institution central to protecting and upholding the monarchy.

The red shirts say Abhisit came to power illegitimately in 2008, heading a coalition cobbled together with the help of the military, after a pro-Thaksin government fell when a court dissolved a party affiliated with him. (Additional reporting by Viparat Jantraprap; Writing by Jason Szep; Editing by Bill Tarrant)