By Chalathip Thirasoonthrakul and Ed Cropley
BANGKOK (Reuters) - Thai Deputy Prime Minister Chavalit Yongchaiyudh quit on Tuesday, saying he accepted responsibility for clashes between police and anti-government protesters that injured 69 people in Bangkok.
The resignation of the government's top negotiator with the People's Alliance for Democracy (PAD) was a further blow to new Prime Minister Somchai Wongsawat's efforts to defuse a four-month street campaign against the elected administration.
Chavalit said he had ordered police to use restraint against the 5,000 PAD supporters barricaded outside parliament to disrupt Somchai's maiden policy speech.
But some protesters were badly hurt, including two men who had part of their legs blown off by exploding teargas canisters when police cleared a path into parliament for ministers.
"Since this action did not achieve what I planned, I want to show my responsibility for this operation," Chavalit said in his resignation letter.
By late afternoon, the PAD controlled several city blocks around parliament and police headquarters, where riot police fired volleys of teargas at the crowd. They lobbed firecrackers at police crouched behind shields.
At one point, a city sewage truck drove past the building, spewing sewage at the entrance to the police HQ.
"Overthrow the Thaksin regime. Together we win or lose. We will know it today. We won't give up," PAD leader Anchalee Paireerak said.
The PAD, a coalition of businessmen, academics and activists, accuses new Prime Minister Somchai Wongsawat of being a political proxy for former premier Thaksin Shinawatra, his brother-in-law, who was removed in a 2006 military coup.
The group argues Thai democracy has been undermined by billionaire Thaksin and his allies, who easily won the last three elections, and has called for a "new politics" that would include a proportion of appointed MPs.
POLITICAL CRISIS
Somchai, a soft-spoken former judge, has proved a harder target for the PAD than his predecessor, the abrasive Samak Sundaravej, who stepped down last month after being found guilty of a conflict of interest.
The demonstrators failed to stop Somchai's speech, in which he called for national reconciliation to end a three-year crisis pitting Thaksin and his rural base against rivals in the royalist and military establishment believed to be backing the PAD.
"This government is determined to tackle economic problems and to listen to all sides to find a solution to end the crisis," Somchai told parliament.
He slipped out through a back gate and drove to a waiting helicopter, which whisked him out of the besieged parliament grounds.
The street campaign has hurt investor confidence and distracted policymakers when they should be focussed on slowing demand for exports and the fallout from the global credit crisis, analysts say.
Traders, citing the unrest, said the dollar advanced against the Thai baht and the stock market tumbled, although in both cases the global credit crisis was also a major factor.
The baht was at 34.47 per dollar, down from 34.38 on Monday. The stock index was down 2.53 percent, failing to get a lift like some other bourses from a big Australian rate cut.
Similar street violence last month triggered a two-week state of emergency in Bangkok, but the army refused to enforce it and the measure was withdrawn after badly damaging tourism.
"I don't think they will impose it this time," Ramkhamhaeng University analyst Boonyakiat Karavekphan said. "The previous emergency decree proved to be futile."
The PAD has occupied the prime minister's offices at Government House since late August, forcing Somchai to run the country from Bangkok's little-used Don Muang airport.
Somchai has tried to open a dialogue with the PAD but no real talks have started and there seems little prospect of compromise with the PAD, which says it is acting to protect the monarchy.
The PAD's main draw card has been defence of the monarchy and 80-year-old King Bhumibol Adulyadej, regarded as semi-divine by many Thais, in the face of what they say is a bid by the Thaksin camp to turn Thailand into a republic.
The accusation is denied by Thaksin, who lives in exile in England after he and his wife fled in August to avoid graft charges, saying they could not get a fair trial.
($1=34.41 baht)
(Writing by Darren Schuettler; Editing by Alan Raybould)
