By Alan Raybould and Nick Macfie
BANGKOK (Reuters) - Thai anti-government protesters gathered on Monday in Bangkok carrying coffins in memory of their comrades killed in clashes at the weekend in the country's most violent political protests in almost 20 years.
The weekend protests that killed 21 people in clashes between security forces and demonstrators drove the country's stock market nearly 4 percent lower on Monday and the market shed over half the gains made at its peak this year.
Bond yields fell as investors bet an interest rate rise expected in the next few months could be delayed if political events derailed the economic recovery.
Saturday's fighting, the worst political violence in the country since 1992 and some of it in well-known Bangkok tourist areas, ended after security forces pulled back late in the night, and the capital has been calm since then.
The "red shirt" protesters want Prime Minister Abhisit Vejjajiva to dissolve parliament and leave the country.
Prapas Tonpibulsak, chief investment officer of Ayudhya Fund Management, expected stocks to fall up to 10 percent in the near term -- not necessarily on Monday -- in reaction to the events.
"It's going to hurt stock market sentiment for sure because the scale of the clashes is beyond expectations. Tourism and related businesses will be the first to be hit," he said.
Among tourist-related stocks, airport operator Airports of Thailand fell 4.1 percent and national carrier Thai Airways slumped 9 percent.
The baht currency was barely changed from Friday.
Credit rating agency Fitch said on Monday it is "particularly concerned" about the local currency rating of Thailand clashes between security forces and protesters that saw 21 people killed at the weekend.
"We expect a deterioration in public finances of Thailand, given the escalated political uncertainty," Vincent Ho, associate director of Fitch's Asia Sovereign ratings, told Reuters by telephone from Hong Kong.
EARLY ELECTIONS
A leading newspaper, citing unnamed sources, said Abhisit could propose early elections to defuse the month-old crisis, although the "red shirts" have said the time for talks was over.
The Bangkok Post daily said Prime Minister Abhisit Vejjajiva could dissolve parliament in six months -- three months sooner than his most recent proposal. Some government figures saw this as the best way to break the impasse, it said.
He has to call an election by the end of 2011.
"They believe an announcement by the prime minister on a timeline for him to dissolve parliament -- regardless of how the red shirt United Front for Democracy against Dictatorship reacts -- might be the best way for him to hang on to his job," it said.
He would not announce this until after the Songkran holiday this week, the newspaper said without elaboration. Songkran, the Thai New Year, runs from Tuesday to Thursday, but the government also made Friday a holiday long before the protests began.
Four soldiers were among the dead on Saturday. More than 800 people were injured.
A government spokesman said on Sunday a line of communication with the red shirts was open but conditions were not right for formal talks. The government announced a state of emergency on April 7 forbidding public gatherings of more than five people.
"As long as they are still breaking the law, that makes it difficult," spokesman Panitan Wattanayagorn said.
But thousands of protesters are in a defiant mood after the army failed to move them from one of two Bangkok bases where they have camped out for a month. One is in an upmarket shopping and hotel area, where big malls have had to close their doors.
"We don't negotiate with murderers," red shirt leader Weng Tojirakarn said on Sunday. "We have to keep fighting."
NEW YEAR'S TRUCE
Deputy Prime Minister Suthep Thuagsuban said the government would have to continue the operation to take back public areas, but that a truce called on Saturday could last a few days.
"It will take some time before we can restart the operation. What happened caused serious hurt to our troops and they need time," he said. Four soldiers were among the dead.
There has been no word from revered King Bhumibol Adulyadej, who has intervened in past political crises. The 82-year-old head of state has been in hospital since last September.
The red shirts are mostly rural and working-class supporters of ex-premier Thaksin Shinawatra, ousted in a coup in 2006.
Until Saturday their rally had been mostly peaceful.
Violence erupted after red shirts attempted to get into a Bangkok army base and were repulsed. Troops then advanced on a red shirt camp and fighting spread around the area, including well-known tourist haunts such as Khao San Road.
(Editing by David Chance and Bill Tarrant)
