Thai army denies martial law rumor, markets rally

Demonstrators take part in an anti-coup rally near Bangkok's Grand Palace June 13, 2007.

BANGKOK (Reuters) - Thai army chief and coup leader Sonthi Boonyaratglin denied rumors on Thursday that he was about to fire his appointed prime minister or impose martial law in the capital, to the relief of nervous stock market investors.

The benchmark SET index, which shed 2.2 percent on Wednesday amid speculation Sonthi was about to crack down on an anti-coup demonstration in Bangkok, regained more than one percent.

Sonthi, who led last September's bloodless military coup against democratically elected prime minister Thaksin Shinawatra, appeared on television to deny reports of an impending curfew or ructions within the military.

Another rumor sweeping through the jittery capital suggested that rogue elements in the Council for National Security (CNS), as the coup generals are called, would oust Sonthi in a counter-putsch.

Prime Minister Surayud Chulanont, appointed after the coup to head an interim government, denied he was about to issue an emergency decree to force a few thousand pro-Thaksin protesters outside Bangkok's glittering Grand Palace to disperse.

"The rumors came during the current intense political activities, but I hope people know how to check these rumors and will not be panicked," Surayud told reporters.

"If the information doesn't come from state media -- either television or radio -- it is just rumor," he said.

Surayud, who can be fired at any time by Sonthi under the interim constitution, said he would only invoke emergency rule in the event of street violence.

MERCURY RISING

The temperature of Thailand's 18-month political crisis has risen several degrees following Monday's decision by the army-appointed Asset Examination Committee to freeze $1.5 billion of Thaksin assets in domestic bank accounts.

Bracing for a large pro-Thaksin rally in the capital planned for Saturday, police and the army were setting up road blocks to stop an influx of farmers from Thaksin strongholds in the north and northeast.

Police spokesman Colonel Piyapun Pingmuang said 1,800 officers and soldiers would be deployed, with the same number on standby in case trouble flared or protester numbers grew beyond the expected 10,000 people.

Although he is legally entitled to return from exile within 60 days to try to clear his name and regain his cash, the former telecoms tycoon appears to have heeded a warning from Sonthi that his life would be in danger if he did.

"Everyone is afraid to die," his lawyer, Noppadon Pattama, told Reuters. "Since the government and coup leaders said his safety could not be guaranteed, there is little chance he will return any time soon."

Suggesting that Thaksin might be walking into a trap if he came back, one of his supporters even reminded a rally on Tuesday of Philippine opposition leader Benigno Aquino, shot dead at Manila airport on his return from exile in 1983.

In Bangkok's febrile political atmosphere, and with economic growth forecasts being cut almost every month, anything is starting to look possible.

The main consumer confidence index fell in May for the seventh month in a row due to a combination of high oil prices, a strong baht and the political turmoil, which is preventing the government from acting to boost flagging growth.

Having ticked up after the coup in the hope military intervention might be the way out of a protracted political mess, the index is now at its lowest in more than five years.

At face value, the coup stemmed from middle-class street protests in 2006 against Thaksin's autocratic style and huge personal wealth, which his opponents say he wielded unfairly to secure unassailable support from the rural masses.

But analysts say it was as much about a royalist military and business elite removing a nouveau riche, ethnic Chinese businessman who had encroached too far on their traditional turf.

(Additional reporting by Nopporn Wong-Anan)