By Ambika Ahuja
BANGKOK (Reuters) - Protests and blockades in the provinces on Monday and a grenade attack against a politician deepened fears of a civil conflict in Thailand 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 provinces to block convoys of police and soldiers from reinforcing the capital, adding to a growing sense of lawlessness.
Hopes for an end to a seven-week standoff that has paralysed Bangkok and killed 26 people were dashed on the weekend when Prime Minister Abhisit Vejjajiva rejected a proposal by the protesters for an election in three months.
Bargain hunters bought Thai stocks, pushing the local index up 1.3 percent, in line with most Asian markets. But Chris Wood, an analyst at brokerage CLSA, said he had cut his allocation of Thai stocks to zero. "All evidence still points to a potentially inflammatory stalemate in Thai politics," he said.
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 Democrat Party to force fresh elections.
ACTS OF DEFIANCE
The mostly rural and urban poor "red shirts," responded to their leaders' call for resistance with a half-dozen blockades in their north and northeast strongholds, another headache for the Oxford-educated Abhisit, who faces pressure from many urban middle class Thais to take a hard line against the protesters.
Hundreds manned roadblocks in at least three northeastern provinces and around Bangkok to prevent security forces from entering the capital ahead of what protest leaders said was an imminent security crackdown. Local television footage showed protesters carrying out searches, even on soldiers.
In northern Phitsanulok, about 150 police with riot gear charged through a makeshift barricade after 100 protesters hurled bottles and rocks at them.
In Pathum Thani province on Bangkok's northern outskirts, hundreds of red shirts abandoned their blockade after being outnumbered by armed troops and police following a tense standoff. Twenty protesters were detained.
Red shirt leaders said 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.
"The government cannot afford another round of failure and embarrassment and it's going to be difficult to go in and disperse protesters who barricaded themselves into a small area without heavy casualties," said Prinya Thewanaruemitkul, a law lecturer at Thammasat University.
"Both sides will continue to threaten each other but total victory on either side is hard to imagine in the near term."
Red shirt guards wearing helmets and carrying wooden staves massed behind walls of tyres and wooden spears surrounding their Bangkok encampment in preparation for battle.
A rival protest group known as the "yellow shirts" said they would gather on Thursday outside a heavily fortified army barracks where Abhisit has a temporary office to urge authorities to disperse the red shirts. They also called for martial law.
"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 well versed in street protests themselves, besieging the prime minister's office for three months and taking over Bangkok's airports for eight days in 2008.
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 a well-armed rogue military element led by retired generals back the protesters and is allied with the red shirts' de facto leader, former premier Thaksin Shinawatra, who was ousted in a 2006 coup.
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 pro-Thaksin government fell when a court dissolved a party affiliated with him.
(Additional reporting by Viparat Jantraprap and Sukree Sukplang; Writing by Jason Szep; Editing by Bill Tarrant and Jeremy Laurence)
