Protesters push for polls as Thai tensions build

BANGKOK (Reuters) - Tens of thousands of protesters pressed ahead with a mass street rally in Bangkok on Monday after Thai Prime Minister Abhisit Vejjajiva rebuffed their demand for elections at a time of heightened political tension.

After three days of peaceful demonstrations, fears of violence resurfaced when three grenades exploded at an army base in central Bangkok, wounding two soldiers, reinforcing concerns over Thailand's long-term investment outlook.

The attack failed to deter foreign investors, who bought $40 million of Thai stocks on Monday. Thailand's stock market, which leapt 63 percent last year, remained in positive territory, while the baht currency hardly moved.

Despite the increase in tension, foreign funds have been flowing into Thailand's stock market -- to the tune of $852 million over the past three weeks -- as investors seek to benefit from a swift rebound in Southeast Asia's emerging economies.

Investors are looking beyond the turbulence at a trio of factors: Thai assets are already trading at a substantial risk discount, the economy has rebounded well despite bouts of unrest and Abhisit is widely expected to survive the protests.

It was also unclear whether the attack was linked to demonstrations by ousted premier Thaksin Shinawatra's red-shirted supporters, who rallied outside a separate military barracks that has doubled as a command center for Abhisit.

It came shortly after Abhisit rejected demands by protesters to dissolve parliament and call fresh elections.

Abhisit, backed by the powerful military and establishment elite, made a live television appearance flanked by members of his shaky coalition, and said the time was not right for a poll, which analysts say Thaksin's allies would likely win.

Nattawut Saikua, one of the main protest leaders, said the re were no immediate plans to march to other locations. He said blood would be drawn from each protester and poured on the street outside Abhisit's office and his Democrat Party headquarters on Tuesday to show "the sacrifice of the people."

"DON'T LOSE HEART"

In a 40-minute address by video link, during which he broke into song about his love for his supporters, the self-exiled Thaksin urged the "red shirts" to keep up their struggle.

"The patience of the people is the heart of success," Thaksin said from an undisclosed location in Europe.

"Do not lose heart yet. Be patient. It may be a little tough," he said, before urging Abhisit's coalition partners to withdraw from the government "for the sake of democracy."

The crowd, which had peaked at over 150,000 the previous night, had dropped to about 70,000, police said, although protest leaders said they expected those in and around Bangkok to return.

Karn Yuenyong, director of independent think tank Siam Intelligence Unit, said Monday's explosions showed the situation was still precarious and more violence could not be ruled out.

"This kind of an attack showed there is quite bit of uncertainty when there are many players involved working toward different goals," Karn said.

An initial investigation showed the grenades were fired into the army compound by a M-79 grenade launcher from outside the base on Viphavadi-Rangsit Rd. The soldiers were hospitalized with wounds to the arm and abdomen respectively. One man was arrested.

The turbulence adds to a prolonged political crisis broadly pitting the military, urban elite and royalists -- who wear yellow at protests and back Abhisit -- against mainly rural Thaksin supporters who wear red and say they are disenfranchised.

Karn said the government still had the upper hand and was well-placed to ride out the storm. "The protesters have a dilemma: stepping it up could provoke unrest which would also hurt their credibility and legitimacy," he said.

"But not stepping it up means they may begin to lose momentum because logistically, it's hard to keep that many people going for that long without results."

That sentiment was echoed by some of the protesters.

"Change has never been achieved without bloodshed. If we don't burn anything, are they going to listen to us?" asked Anong Meeta, a farm owner from eastern Chantaburi province.

"I will stick with the leaders' non-violent ways, but it would break my heart if we have to leave with nothing."

(Additional reporting by Chalathip Thirasoontrakul; Writing by Martin Petty; Editing by Raju Gopalakrishnan)