By Martin Petty and Ploy Ten Kate
BANGKOK (Reuters) - Tens of thousands of protesters poured onto Bangkok streets declared no-go zones by the government on Tuesday in defiance of so far hollow threats by the authorities to arrest and imprison demonstrators.
Police and soldiers took no action as red-shirted supporters of ousted former premier Thaksin Shinawatra taunted the embattled government, fanning out across the city of 15 million people on motorcycles and pickup trucks.
Protesters demanding new elections occupied the city's plush shopping district for a fourth day, but as thousands of riot police moved in, leaders cancelled plans to tour the city to avert a possible confrontation.
But after it became clear security forces would not break up the rally and the army promised "no crackdown," demonstrators performed a swift U-turn in an apparent effort to embarrass the government and catch troops off guard.
"From now we will make an offensive move," a protest leader, Nattawut Saikua, shouted to the crowd. "Let our people ... march to all the banned 11 routes immediately."
However, the campaign that shows no signs of fizzling out has not dampened the mood of foreign investors who have pumped more than $1.6 billion (1.05 billion pounds) into Thailand's stock market since February 22. Tuesday was a market holiday.
The protesters' action, analysts say, illustrates how the mostly rural protest movement has been emboldened by Prime Minister Abhisit Vejjajiva's lack of decisive action. They believe his uneasy six-party government is wavering.
Abhisit is facing pressure to end the 25-day-old protest campaign and Tuesday's lack of action will likely raise questions about his leadership.
CROSSED THE LINE
In a televised address, Abhisit repeated his call to maintain law and order, but gave no indication of his next move.
"Once again, the rally is crossing the line. This is an unlawful protest," he said. "We know that the situation is unfavourable. We will try to fix it."
The army-backed premier faces a dilemma about how to respond: anger Bangkok's middle classes and parts of his own government by doing nothing, or risk confrontation by forcibly moving protesters defying the law but yet to resort to violence.
Analysts said the "red shirts" seemed to have the upper hand and had forced Abhisit into a tight spot.
"They're putting the PM under pressure to respond," said Andrew Walker, a Thailand researcher at Australia National University.
"If he cracks down and there is violence, the image of stability is shattered. It's likely he'll be forced into further talks, but this will embolden the 'red shirts' even further."
A string of mysterious and unsolved bombings and grenade attacks have heightened tensions. On Tuesday, two policemen guarding the headquarters of Abhisit's Democrat Party were injured when an M-79 grenade was fired into the compound.
The protesters have recruited followers among migrant workers and working classes in the capital. That has annoyed business elites and urban middle classes and underlined the social divide that has caused some foreign businesses to reconsider long-term investment in Southeast Asia's second-biggest economy.
Rainer Stampfer, general manager of the lavish Four Seasons Hotel, said the protest was bad for business, though there was no sign of violence.
"The situation isn't pleasant and it's certainly very damaging to tourists and to our hotel," he said. "But it's not hostile at all -- they're singing and dancing and smiling. If they wouldn't hurt business, we might look at it differently."
The protests are fuelled by feelings of disenfranchisement, a widening gap between rich and poor and popular belief that unelected, powerful elites colluded with the army or top judges to bring down governments elected by the majority, two of which were led or backed by Thaksin.
The protesters see the urbane, Oxford-educated Abhisit as a symbol of elite domination of Thai politics. They accuse him of being a stooge for a powerful military which they say masterminded his rise to power, sponsoring political defections to enable him to win a parliamentary vote in December 2008.
Analysts believe dialogue is the only way out of a standoff that could turn violent, stifle economic recovery and curtail a recent surge in capital inflows.
"Abhisit needs to push for a third round of talks, behind closed doors. This is his best option," said Nakharin Mektrairat, political scientist at Bangkok's Thammasat University.
Protesters said Abhisit would be wasting his time.
"I've seen such a double standard the way we're being treated and I'm more than willing to stay here until Abhisit dissolves parliament, said demonstrator Yupadee Paisati.
"He should not try to bargain anymore."
(Additional reporting by Saranya Suksomkij; Editing by Ron Popeski)
