By Vithoon Amron and Ambika Ahuja
BANGKOK (Reuters) - Thai Prime Minister Abhisit Vejjajiva on Friday made his army chief the head of national security in a bid to involve the military as anti-government protesters massed in the streets calling for his downfall.
Army chief General Anupong Paochinda will replace Deputy Prime Minister Suthep Thaugsuban, Abhisit said, admitting that efforts to rein in the protests had failed six days after violent clashes killed 24 people.
"Brothers and sisters, I want to insist the government is going forward to solve the problem that we know brings sorrow to Thai people," Abhisit said in a televised address delayed from early afternoon.
"Many operations have failed because there has been a congregation of many people which presents obstacles and limitations to work of security forces ... Sometimes we have to be patient and sometimes we have to accept the impact of security operations."
The move comes after a failed attempt, ordered by Suthep, to arrest red shirt leaders on Friday, another embarrassing setback for the authorities after last week's failure to clear a protest site in the old part of the city.
But it appears to be more about getting the army in, rather than shunting Suthep out. It removes the possibility of the army brushing the protests aside as a political problem requiring a political solution. It is involving those security forces who are still loyal to the government, which is most of the top brass.
Abhisit promised to crack down on "terrorism," which the government blames for Saturday's killings, as well as enforce the state of emergency announced on April 7.
Red shirt protesters have gathered at a hotel and shopping centre in the middle of the city, now the main protest encampment which they have occupied for a month.
Abhisit has been absent from the public eye since Monday.
At least 24 people were killed and more than 800 wounded in Saturday's clashes, Thailand's worst political violence since 1992, which only appears to have hardened the four-year political impasse and raised the possibility of more bloodshed.
STOCKS FALL
The risk of further instability sent Thai stocks down 3.25 percent. The market has now lost almost all its gains this year.
"Under the current uncertain situation, we recommend investors to stay along the sidelines at the moment as we could see a possibility of another 5 percent drop in the near term," Julius Baer Research said in a note to clients on Friday.
The $33 million (21 million pounds) LionGlobal Thailand Fund said it was "positive on the long-term outlook for the Thai market, overweighting the banking sector which is expected to benefit from the domestic economic recovery through higher loan growth and lower loan provisions."
Tourism has taken a hit, with occupancy rates less than a third of normal levels in Bangkok, according to a tour operator body.
Morgan Stanley said in a report that losses to tourism, which accounts for 6 percent of gross domestic product, could clip 0.2 percentage point from economic growth this year.
The government says Thailand's economy could grow 4.5 percent this year, but Finance Minister Korn Chatikavanij warned that forecast could prove optimistic.
Thailand's five-year credit default swaps (CDS), often used as a measure of political risk, were trading at 111/116.85 against 105/111 bps on Monday, the last trading day prior to a three-day holiday.
The red shirts back Thaksin, who was ousted in a 2006 coup, and want Abhisit to step down immediately and call early elections. The government has offered December -- possibly October -- as poll dates. The powerful military chief this week also suggested early polls to resolve the crisis.
Korn told Reuters on Thursday Abhisit would not resign as it would "be very negative for the country."
(Additional reporting by Viparat Jantraprap; Writing by Nick Macfie; Editing by Jeremy Laurence)
