By Martin Petty and John Ruwitch
BANGKOK (Reuters) - Troops gathered at Government House in Bangkok Tuesday and appeared poised to try to drive out anti-government protesters encamped there for three weeks, after violence Monday in which two people were killed.
Army spokesman Colonel Sansern Kaewkamnerd said on television the authorities estimated there were about 2,000 protesters left at Government House, supporters of former premier Thaksin Shinawatra who are demanding new elections.
Rating agencies say that, beside the damage to Thailand's crucial tourist industry, the latest bout of political instability could hit foreign and domestic investment and add to the problems of a country heading into recession.
A Reuters reporter said many roads in the old quarter around Government House were blocked by barbed wire barricades manned by soldiers. The troop presence was also building up in the area.
Sansern said four or five main intersections in Bangkok were blocked by the security forces.
Monday there were violent clashes at a big intersection in the capital, which the red-shirted demonstrators had barricaded and which troops cleared with repeated charges, firing shots.
Black smoke had billowed over the city of 12 million people after protesters set fire to buses to block the troops. A fire was started in one government building.
Prime Minister Abhisit Vejjajiva, who declared a state of emergency in Bangkok Sunday, told Reuters it was a "do-or-die" moment for the rule of law and he would not negotiate with Thaksin.
Rating agencies Standard & Poor's and Moody's, which have a negative outlook on Thailand's sovereign ratings, said the latest unrest increased the risk of a downgrade.
"What we'll watch now is to see how unstable the situation becomes ... because continued unrest would be bad for domestic investors to put their money at risk as well as foreign investors," said Thomas Byrne, senior vice president and regional credit officer for Moody's in Singapore.
Financial markets remained closed for the three-day Thai New Year holiday, reopening Thursday. The holiday meant the roads of Bangkok, normally clogged, were quiet this week.
The rest of the country was also quiet, with Sansern noting only two incidents outside Bangkok Monday, when red-shirted protesters tried to stop transmission of a state television channel.
TWO DEAD
Thailand's intractable political crisis broadly pits royalists, the military and the urban middle-class against the rural poor loyal to Thaksin.
Abhisit told Reuters that dissolving parliament in order to hold elections could lead to electoral violence, but he would listen to the grievances of some of the protesters.
"I'm not interested in making a deal with Thaksin," he said.
"But I do listen to the concerns of some people who have joined the 'red shirts' in terms of democratic developments. In particular, if they are not satisfied with the constitution, if they think there may be some injustice in the system, I am happy to address those."
The tourist sector was barely picking up after a one-week shutdown of Bangkok's airports by protesters opposed to Thaksin late last year when a government allied to him was in power. Several countries have issued advisories on travel to Thailand.
Thaksin, ousted in a 2006 coup and living in exile to avoid jail on a corruption conviction, also popped up on international TV networks from an undisclosed location, claiming that many people had died Monday.
A government minister and medical officers said two people had died, both of them in skirmishes between residents and protesters, many of whom were bused in from outside the capital.
Army spokesman Sansern said a soldier patrolling in the city during the night had been seriously wounded by a shot fired by someone riding on a motorbike.
The Emergency Medical Institute said Tuesday that 113 people, including soldiers, had been injured in the clashes.
Saturday, protesters forced the cancellation of a high-profile Asian summit in Thailand, a big embarrassment for Abhisit, who took office only in December.
The political strife in Thailand died down for a while after he came to office through parliamentary defections that Thaksin supporters say were engineered by the army.
They are demanding new elections, and protests flared up after Thaksin said Abhisit must resign by April 8 -- the day before the now abandoned East Asia Summit started.
(Additional reporting by Vithoon Amorn and Bangkok bureau; Writing by Alan Raybould; Editing by Andrew Marshall)