By Ambika Ahuja
BANGKOK (Reuters) - A grenade attack on the home of a senior Thai politician and acts of defiance in the provinces deepened fears on Monday over civil conflict after the prime minister rejected demands by anti-government protesters.
Protesters fortified a sprawling encampment in Bangkok's main shopping district and urged supporters in northern regions to block convoys of police and soldiers from travelling to the capital, adding to a growing sense of lawlessness.
"We believe the threat of a crackdown is high," Nattawut Saikua, a protest leader, said from a stage in the shopping district where at least 8,000 people sang and listened to speeches through the night on Monday.
Prime Minister Abhisit Vejjajiva on Saturday rejected a proposal by the protesters to call elections in 30 days and hold a vote 60 days later, dashing hopes for an end to the seven-week standoff that has paralysed Bangkok and killed 26 people.
Brave bargain hunters bought Thai stocks, pushing the local index up 1.6 percent to outperform most Asian markets, but brokers described the rise as fragile and said the risk of violence would likely make trading choppy in days ahead.
Chris Wood, an analyst at brokerage CLSA, said on Monday he had cut his allocation of Thai stocks to zero. "All evidence still points to a potentially inflammatory stalemate in Thai politics," he said in a note to clients.
Underlining those concerns, a grenade was hurled late on Sunday at a police post near the home of Banharn Silapa-Archa, chief adviser to the Chart Thai Pattana Party, wounding at least 11 people, a medical centre said.
Banharn is a former prime minister who has switched allegiance regularly throughout his career. Protesters have called for his party and other governing coalition partners to abandon Abhisit's Democrats to force fresh elections.
ACTS OF DEFIANCE
The mostly rural and urban poor "red shirts" are showing signs of defiance in their northern strongholds, another headache for the Oxford-educated Abhisit, who faces pressure from upper-class and royalist Thais to take a hardline with them.
In northern Pathum Thani province bordering Bangkok, protesters planned a new blockade at a major highway, a day after they used a truck and metal barricades to stop a convoy of hundreds of policemen from entering the capital.
The police retreated late on Sunday, apparently to avoid a confrontation. Similar blockades were being formed in northeastern Udon Thani and Ubon Ratchathani.
Red shirts say they thwarted a military crackdown on their encampment in central Bangkok after supporters turned out in force on Sunday night. The army chief has said repeatedly a crackdown would do more harm than good.
Any attempt to disperse them risks heavy casualties and the prospect of clashes spilling into high-end residential areas, which are slowly emptying of residents and workers as shops close and apartment building owners tighten security.
A rival anti-Thaksin protest group known as the "yellow shirts" said they will gather on Thursday outside a heavily fortified army barrack where Abhisit has a temporary office to hand over a letter to him and the army chief, urging them to disperse the red shirts.
They threatened to take unspecified steps if the government cannot end the red shirt protest.
"Now there is a state within a state," Suriyasai Katasila, one of the movement's leaders, told Reuters on Monday. "It's anarchy and the government needs to do something to end that."
The "yellows shirts" are themselves well versed in street protests, having besieged the prime minister's office for three months and taking over Bangkok's airports for eight days in 2008, a siege that ended with a judicial dissolution of the pro-Thaksin People's Power Party
The crisis is starting to carve into Thailand's economy, Southeast Asia's second biggest. Thailand's 2010 economic growth forecast of 4.5 percent could be cut by 0.64 percentage point, if the anti-government protests are prolonged for up to three months, a government spokesman said on Monday.
Army chief Anupong Paochinda acknowledged on Sunday some retired and inactive officers had joined the protest movement, but sought to play down talks of a split in the armed forces.
Analysts say the army faces a well-armed rogue military element led by retired generals that supports the protesters and is allied with former premier Thaksin Shinawatra, ousted in 2006 coup and sentenced to prison after fleeing the country.
Analysts and diplomats say both sides want to be in power in September during an annual reshuffle of the military, an institution central to protecting and upholding the monarchy.
The red shirts say Abhisit came to power illegitimately in 2008, heading a coalition cobbled together with the help of the military after a court ruling dissolved a pro-Thaksin party.
(Additional reporting by Viparat Jantraprap; Writing by Jason Szep; Editing by Bill Tarrant)
