UPDATE 2-Protesters splash their blood outside Thai PM office

* Numbers drop as rural supporters start to leave

* Analysts say threat of confrontation remains

* Stocks reach 2-month high, baht firm as protest is peaceful (Recasts with protesters pouring blood)

By Ambika Ahuja

BANGKOK, March 16 (Reuters) - Anti-government protesters poured bottles of their own blood outside the Thai prime minister's office on Tuesday, a "sacrifice for democracy" after demands for elections were rejected.

Hoping to re-energise a movement waning after four days of peaceful protests, supporters of ousted premier Thaksin Shinawatra gathered at a heavily guarded Government House to splash 300 litres (80 gallons) of their blood at the gates.

The government showed no sign of heeding pressure to call polls, which Thaksin's allies would be well placed to win.

The absence of violence and a growing view that Prime Minister Abhisit Vejjajiva, with the backing of the military, can ride out the crisis was a key factor helping lift Thailand's stock market .SETI 2.4 percent to a two-month high on Tuesday.

Despite political tensions, foreign investors have been buyers of Thai stocks for the past 15 sessions, scooping up a net $850 million over that period, although volumes slowed this week.

"If we can get past this week, things should return to normal," said Patareeya Benjapolchai, president of the Stock Exchange of Thailand.

That message was reinforced by U.S. investment bank Morgan Stanley, which upgraded its recommendation on Thailand's stock market to "overweight" in a note to clients. [ID:nSGE62F03J] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^^ Take-a-Look at the political crisis, click [ID:nTHAILA ND] Scenarios of possible outcomes, click [ID:nSGE62D00C] Q+A about the "red shirts", click [ID:nSGE62D00D] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ > At the rally site, some "red shirts" dwelled on their failure to achieve their goal as others withered under Bangkok's scorching sun. Of the 150,000 demonstrators who had massed on Sunday night, many had left. Police say about 30,000 remained.

"We will continue. The people will decide how long we will stay," Weng Tojirakarn, a protest leader, told Reuters.

"This is certainly a success. We have put concepts of class difference and double standard in the public mind."

Throughout the day, "red shirts" lined up under a tent to give 10 cubic cm (0.6 cubic inches) of blood to medical volunteers and nurses, which was paraded on stage in 5-litre bottles after their symbolic shedding of blood.

About 2,000 soldiers and police guarded Abhisit's office as protesters watched a priest in white perform a ritual to curse the premier.

"When the picture of this reaches Abhisit, won't he be just a little bit ashamed of himself?" asked 76-year-old Rung Suramanee.

SIGNS OF FRUSTRATION

Despite days of fiery rhetoric by demonstrators on how the mainly rural "red shirts" have been marginalised by the military, urban elite and royalists who back Abhisit, some expressed frustration about the rally's lack of impact.

"We have spilled blood. What's next? I am not sure where this is going. I have faith in the 'red shirts' but I am not sure we will get anything without shaking things up a bit," said Chanchai Thiangsomboon, a farmer from northeastern Kalasin province.

Fears of violence briefly surfaced on Monday when three grenades exploded at a Bangkok army base, wounding two soldiers. It was unclear whether the attack was linked to the rally. Waning numbers could also push some frustrated protesters to step up the fight, risking a confrontation with authorities.

Economists say prolonged unrest could hurt businesses and delay an expected interest rate rise. That looks less likely given the orderly protest, although Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said on Tuesday the bank will consider politics when it next reviews rates. [ID:nBKT003221]

Worries about the political situation helped depress consumer confidence in February, after months of improvement as the economy recovered from a brief recession. [ID:nSGE62A043]

The twice-elected Thaksin was ousted in a military coup in 2006 and later sentenced in absentia to two years jail for graft. He fled into exile shortly before his sentence was passed and lives mainly in Dubai, although thought now to be in Europe.

Core "red shirt" leaders echoed Thaksin's recent calls for patience but analysts said a drop in numbers may force the leaders to start looking for ways to end the rally for now.

"It's tricky for them. They have to do it in a way that does not embarrass the leaders and disappoint participants too much because that could undermine their credibility among their own supporters," said political scientist Somjai Phagaphasvivat.

"But in the long term, it would help their image, especially among the public who are on the fence -- people who agree with their cause but have been reluctant to join because they do not support Thaksin and disagree with violence."

Asked if he was ready to talk to the protesters, Abhisit told reporters at a military base where he has been using as a command centre: "If they want to exchange ideas ... I am willing to listen, but I have to decide on the basis of the whole country."

His deputy, Suthep Thaugsuban, said the government remained vigilant with continued intelligence about security threat. Critics have accused the government of fearmongering.

Allies of Thaksin remain hugely popular in the vote-rich north and northeast and will likely to win the next election, which must called by the end of 2011. ($1=32.55 Baht) (Additional reporting by Chalathip Thirasoontrakul and Ploy Ten Kate; Editing by Martin Petty and Sugita Katyal)