By Ambika Ahuja
BANGKOK (Reuters) - Thai authorities will shut roads surrounding thousands of anti-government protesters on Thursday evening, sparking calls by demonstrators for reinforcements as tensions rise in the deadliest political crisis in 18 years.
The army will also bring in armoured vehicles to bolster checkpoints, stopping any protesters from entering the area, and urged businesses on roads leading into the protesters' 3 sq-km (1.2 sq-mile) fortified encampment to close on Friday.
"In an operation to step up pressure and limit the protest area, we will bring in armoured vehicles to help protect officers from those militants among protesters," army spokesman Sansern Kaewkamnerd told reporters.
The Thai baht fell sharply immediately after the army's announcement, though witnesses saw no unusual activity around the sprawling red shirt encampment.
"Every bank is trying to get out the baht now and we have not seen any central bank intervention to slow its fall," a Bangkok-based trader said. A second dealer said some of his clients closed business early on Thursday. "The sign is strong today," he said, referring to a possible army crackdown.
The mostly rural and urban poor protesters remained defiant, refusing to leave and challenging the government from behind medieval-like walls made from tyres and wooden staves soaked in kerosene and surrounded by razor wire.
"We urge that our supporters come and help us here because the more people we have, the harder it is for them to hurt us," Nattawut Saikua, a protest leader, told cheering supporters.
"We are ready for any attempt to forcibly disperse us. Our guards are ready to protect the site."
Prime Minister Abhisit Vejjajiva is under enormous pressure to end the two-month crisis that has killed 29 people, wounded more than 1,000, paralysed parts of Bangkok and slowed growth in Southeast Asia's second-biggest economy.
The turmoil is shattering consumer confidence, a survey showed on Thursday, suggesting spending in shops and department stores is drying up as the crisis grinds on, a troubling sign for a sector that accounts for half the economy.
The University of the Thai Chamber of Commerce said its consumer confidence index fell by a record 2.6 points in April, the lowest since July 2009. Confidence has fallen for three straight months after rising steadily since the middle of 2009.
About 10,000 of the red-shirted protesters ignored a midnight deadline to disperse after authorities delayed plans to cut power and water to the area following outcry from residents.
BLOW TO CREDIBILITY
Protesters say Abhisit lacks a popular mandate after coming to power in a controversial parliamentary vote 17 months ago with support from the military.
The prime minister on Wednesday cancelled a proposed November 14 election under his "national reconciliation" plan and called off talks with the protesters, raising speculation of a crackdown.
But he faced criticism for announcing he would cut supplies to the area and then reversing the threat hours later.
"To come out publicly with a threat, causing major worries among some and raising hope among others, and then to retract it, was a very bad move for Abhisit," said Sombat Thamrongthanyawong, head of the National Institute of Development Administration.
"It's another blow to his credibility. And that's going to make it harder to resolve the crisis, let alone govern."
Both sides appear to be running out of options, raising the risk of a violent confrontation and flummoxing investors in one of Asia's most promising emerging markets.
"The markets have no idea what to make of the situation. It seems like we're heading back to square one," said Sukit Udomsirikul, a senior analyst at brokerage Siam City Securities.
"It's obvious it's more difficult than they thought in terms of how to disperse the protesters," Sukit added. "A resolution to the crisis looks far off."
Foreign investors have turned negative since violence flared in April and have sold $584 million (393.4 million pounds) in Thai shares in the past six sessions, cutting their net buying so far this year to $607.6 million as of Wednesday.
Disparate views among protest leaders -- from radical former communists to academics and aspiring lawmakers -- make it difficult to reach consensus. Many face criminal charges for defying an emergency decree and some face terrorism charges carrying a maximum penalty of death.
Several harbour political ambitions and need to appease rank-and-file supporters. Others fear ending the protest now would be a one-way ticket to jail. Some hardliners advocate stepping up the protests to win the fight once and for all.
"Most people want this to end but they are sceptical because the government cannot guarantee our safety," Korbkaew Pikulthong, another protest leader, told Reuters. "The problem is some of us face severe charges and the government shows no inclination to be fair to us. A few want to fight on because we have come so far."
The red-shirted protesters, mostly supporters of former premier Thaksin Shinawatra who was ousted in a 2006 coup, have said they would only disperse if a deputy prime minister faces criminal charges over a deadly April clash between troops and protesters.
(Additional reporting by Ploy Ten Kate and Panarat Thepgumpanat; writing by Jason Szep; editing by Bill Tarrant)