By Damir Sagolj and Arada Kultawanich
BANGKOK (Reuters) - A soldier died in fighting between Thai troops and anti-government protesters in Bangkok early on Monday, officials said, after authorities rejected demands for U.N.-supervised talks to end two months of protests.
A Reuters photographer reported heavy fighting overnight at the luxury Dusit Thani Hotel in the Silom area, right opposite one of the barricades set up by the "red shirt" protesters around their 3 sq-km (1.2 sq-mile) encampment.
"Everybody was evacuated from their room and spent the night in the basement," said the photographer. "There was a lot of shooting," he said, adding fire had damaged parts of the hotel.
The fighting has now killed 35 people since Thursday, Erawan Medical Centre said, while Thai TNN TV said the first soldier to die in the latest bout of violence was killed in clashes in the Silom Road business area.
Thai TV reported that one person was killed when grenades were fired at the Dusit Thani Hotel, but that could not immediately be confirmed.
"We cannot retreat now," Prime Minister Abhisit Vejjajiva said in a televised statement late on Sunday, encapsulating the government's all-or-nothing campaign to end protests seeking to topple his fragile, six-party coalition.
At least 64 people have been killed and more than 1,600 wounded since the red shirts began their protest in mid-March.
One of their leaders, Nattawut Saikua, called for a cease-fire and U.N.-moderated talks to end the violence that flared on Thursday evening with the attempted assassination of a renegade general advising the red shirts, who was shot in the head.
Korbsak Sabhavasu, the prime minister's secretary-general, rejected the idea. "If they really want to talk, they should not set conditions like asking us to withdraw troops," he said.
The government considered imposing a curfew on Sunday night but decided against it. However, schools in parts of Bangkok are to stay closed this week and the government has made Monday and Tuesday public holidays to keep civilians out of the centre.
Banks and financial markets will open, although the stock market -- which started down 3 percent -- is closing an hour early on Monday at 3:30 p.m. (9:30 a.m. BST).
"We can't see when the turmoil will end now and it seems the situation is just getting fiercer. The protesters are separating to many different spots and the government isn't retreating," said Kavee Chukitkasem, head of research at Kasikorn Securities.
"As long as we can't guess the outcome, our stock market is going to look even worse than our neighbours', which will be hit by the euro debt jitters," he added.
SEEKING REFUGE
The government has told women, children and elderly people in the main protest camp in an upmarket Bangkok shopping district to get out by 3 p.m. (9 a.m. BST) on Monday and a government official said they would be given free transport home.
Hundreds of women and children have sought refuge in a temple in the area.
The mostly rural and urban poor protesters, supporters of ousted premier Thaksin Shinawatra, accuse the government of colluding with the royalist elite and meddling with the judiciary to bring down two Thaksin-allied governments.
Analysts and diplomats said the military had underestimated the resolve of thousands of "red shirt" protesters who had taken over a district of luxury hotels and shopping malls from April 3.
"Unless the government cracks down and does so decisively -- and that's a big if -- we are going to be seeing rioting and guerrilla warfare, possibly spreading out to other areas," said an Asian diplomat who declined to be identified.
A state of emergency has spread to more than a quarter of the country after emergency decrees were declared in five more provinces on Sunday, bringing the total to 22, as violence erupted in the north and northeast, a Thaksin stronghold home to just over half of Thailand's 67 million people.
In Ubon Ratchathani province, protesters burnt tyres on several roads. One group tried to break into a military compound but were forced back by soldiers firing guns in the air.
The most severe fighting in Bangkok on Sunday took place in the Bon Kai area, around Rama IV Road, a major artery to the business district. Troops fired semi-automatic weapons as protesters hurled petrol bombs and burnt tyres to provide cover.
Thousands of protesters rallied in the working class Klong Toey area over the weekend, near the fighting on Rama IV Road. A new protest site would vastly complicate attempts to end the protests and resolve a crisis that has battered the economy.
Soldiers can shoot if protesters come within 36 metres (120 ft) of army lines, said army spokesman Sansern Kaewkamnerd.
The government insists that some of the protesters are armed with grenades and guns and showed footage on national television in an attempt to bolster their case.
The government's strategy of trying to starve protesters out of their encampment was showing signs of having an effect. Supplies of food, water and fuel were starting to run thin as red shirt delivery trucks were being blocked.
(Additional reporting by Jason Szep, Ambika Ahuja, Ploy Ten Kate, Panarat Thepgumpanat and Martin Petty; Writing by Alan Raybould; Editing by David Fox)
