By Ambika Ahuja and Ploy Ten Kate
BANGKOK (Reuters) - Anti-government protesters in Thailand were considering on Tuesday a government proposal for a November election aimed at healing social divisions and ending a deadly political crisis that has paralysed the economy.
It was unclear, however, if the leaders of the red-shirted supporters of ousted former Prime Minister Thaksin Shinawatra would drop their demands for immediate elections and accept Prime Minister Abhisit Vejjajiva's offer, made late on Monday.
Thailand's benchmark stock index jumped 4.5 percent as investors focussed on a possible end to a stalemate that had raised the risk of civil strife in one of Southeast Asia's most promising emerging markets.
"Whether this is the beginning to the end of this political impasse, or whether this is the end of the stand-off, it really depends on the protesters' response," said Warut Siwasariyanon, head of research at brokerage Finansia Syrus Securities.
The Thai baht firmed nearly a quarter percent. Prices of government bonds, seen as a safer bet at times of tension and therefore strong in recent weeks, fell on expectation of an end to a crisis that has killed 27 people and wounded nearly 1,000.
If the protesters agree to Abhisit's offer, the central bank is more likely to raise interest rates in June with political tension less of a drag on the economy. Thailand's finance minister has said the protests could cut growth by 2 percentage points if they continued all year.
Reflecting a shift in consensus interest rate expectations, the one-year onshore interest-rate swap, the fixed cost needed to receive a floating payment, rose to 1.48 percent from 1.30 percent. The benchmark rate is now at 1.25 percent.
The cost of insuring Thailand's debt against default hit a two-week low.
CAUTIOUS OPTIMISM
The large and disparate leadership of the United Front for Democracy Against Dictatorship, as the protest movement is known, complicates any decision, although its more than 20 leaders expect to produce a formal response by late Tuesday.
General Chavalit Yongchaiyudh, chairman of the red shirts' political arm, the Puea Thai Party, welcomed Abhisit's plan, saying he believes red shirt leaders may call off the protest on Wednesday, the king's official coronation day.
Another protest leader, Suporn Attawong, expressed cautious optimism over the proposed election, which the protesters' political allies would be well placed to win. "It would be wonderful to reach an end without more losses," he said.
Some, however, doubt it would end Thailand's polarising crisis pitting the military, urban elite and royalists against the mainly rural red shirts who say they are disenfranchised in a country with one of Asia's widest income disparities.
"It sounds good in theory but could Abhisit really pull it off so we can have true reconciliation?," Kwanchai Praipanna asked a gathering of his supporters in the protesters fortified encampment in the heart of Bangkok's commercial district.
The protesters say Abhisit lacks a popular mandate after coming to power in a controversial parliamentary vote 17 months ago, heading a coalition cobbled together with military help.
Abhisit had previously offered an election in December, about a year before his term ends, and some analysts doubted whether the slightly earlier date would satisfy the red shirts, who broadly back Thaksin, a populist multimillionaire ousted in a 2006 military coup.
They say both sides want to be in power in September for two critical events -- a reshuffle of leaders in the military and police force and the passing of the national budget, which could give the government an edge in the next election.
MILITARY RESHUFFLE
If Thaksin's camp prevails and is governing at the time of the military reshuffle, analysts expect big changes, including the removal of generals allied with Thailand's royalist elite, a prospect royalists fear could diminish the power of the monarchy.
"The game plan is for the government to make it appear this offer is reasonable. If the red shirts reject it, they'll be seen as the unreasonable party," said Roberto Herrera-Lim, an analyst at risk consultancy Eurasia Group.
In his televised statement, Abhisit set five broad conditions for reconciliation that must be agreed before any election.
The first was that the revered Thai monarchy should not be dragged into politics or "violated." That follows government accusations some "red shirts" aim to overthrow the monarchy.
The other proposals call for reforms to address social injustice -- a key red shirt grievance -- an independent body to monitor media bias, an inquiry into recent political violence and reforms that could include constitutional amendments and a review of a five-year ban on politicians allied with Thaksin.
The red shirts may not have much choice but to agree, said Sukhum Nuansakun, an independent political analyst, citing a public relations debacle after about 200 red shirts flooded into a hospital last Thursday in search for troops.
The government has also played up accusations labelling some of them terrorists with republican leanings.
"They may have to take this offer or at least come back with a reasonable counter-offer with the goal of ending this quickly before their position become even weaker," Sukhum said.
(Additional reporting by Saikat Chatterjee in Hong Kong; Writing by Jason Szep; Editing by Alex Richardson)
