Factbox: Key political risks to watch in Thailand

SINGAPORE (Reuters) - A failed reconciliation effort, mysterious gun and grenade attacks, intractable political divisions and a costly freeze on dozens of industrial projects continue to cloud Thailand's investment outlook.

Thai 5-year sovereign credit default swaps are trading at a spread of around 125 and have climbed as high as 135 this month, close to the highest level in a year.

Following is a summary of key Thailand risks to watch:

* POLITICAL INSTABILITY

Thailand is deeply polarized. Political tensions are at their highest in almost two decades and some analysts are even starting to raise the possibility of civil war.

An escalating conflict between an anti-establishment bloc comprised largely of rural and urban poor demanding new elections, pitted against the government and its military and royalist backers, has led to violent confrontations in Bangkok, with 29 people killed and more than 1,000 wounded since April 10 clashes between troops and "red shirt" demonstrators.

The red-shirted supporters of ousted former Prime Minister Thaksin Shinawatra are occupying a district of luxury malls and five-star hotels, and have held disruptive "mobile" rallies elsewhere. Anger and resentment are festering among Bangkok's middle class, largely opposed to the red shirts, heightening tensions in a capital flooded with troops and riot police.

Unexplained gun and grenade attacks in the Silom business area in the last two weeks have killed three people and wounded more than 100, keeping tensions high and raising doubts about the ability of police and troops to provide security.

The temperature cooled a little when Prime Minister Abhisit Vejjajiva put forward a "reconciliation plan" that included an election on November 14 -- Thai shares jumped 4.4 percent in response to the proposal.

But Abhisit's offer was withdrawn on Tuesday when the red shirts made counter proposals to a "non negotiable" deal. The government says the reconciliation plan will go ahead but the election scrapped. Abhisit gave them an ultimatum to leave by Tuesday or face action, but the protesters defied this and are seeking reinforcements as troops prepare to mobilize around the site amid threats of a crackdown by the government.

Foreign investors have turned negative since violence flared in April and have sold 17.4 billion baht ($539 million) in Thai shares over the past five sessions, cutting their net buying so far this year to 21 billion baht as of Tuesday.

What to watch:

-- Economic impact. The bloodshed halted more than six weeks of gains on the stock market. The vital tourism industry has taken a hit and consumer confidence hit a nine-month low for February and March. Thailand's finance minister said on Tuesday the crisis could trim 0.3 percentage point off Thailand's targeted annual growth rate this year of 4.5 to 5 percent.

-- Next moves. Reconciliation looked the best option but the government would be severely embarrassed if it did a U-turn after saying the deal was off. Abhisit and the army have been reluctant to evict the protesters, fearing massive casualties on both sides. Abhisit has few options and may have to use force. If not, he will come under pressure to step down.

-- Stability of Abhisit's coalition. The army-backed six-party alliance remains uneasy and could crumble at any moment if Prime Minister Abhisit Vejjajiva makes a major misstep. Thai politicians are seldom loyal to their parties and are happy to jump ship if the price is right, a move that would almost certainly lead to an election, which might provide brief respite but open the door to more instability as polls approach.

-- The government could also face a confidence motion lodged by the pro-Thaksin Puea Thai party, which has delayed submitting the motion and is expected to play the card at a time when the government is at its weakest.

-- Any election might well be won by the reds, but this would mean the royalist "yellow shirt" movement, which occupied Bangkok's airports and the government headquarters in 2008, would resume efforts to unseat it. Worse, the army, which has proved inept at running the country directly, might intervene again.

* INDUSTRIAL ESTATE FREEZE

A Thai court last year suspended 56 projects -- initially 76 -- at the Map Ta Phut industrial estate, the world's eighth-biggest petrochemicals hub, raising concerns about bureaucratic unpredictability and the competence of a government fighting fires on multiple fronts. The intensification of political unrest is likely to distract the government's efforts to settle the complex issue, which could now drag on.

The freeze has affected projects worth an estimated $9 billion to $12 billion, with companies like energy giant PTT and Siam Cement, Thailand's largest industrial conglomerate, among those hit by an injunction due to their failure to carry out environmental and health impact assessments as required by the constitution.

In February, Abhisit announced proposals he hoped would get the stalled projects restarted in six to nine months, but many analysts say this is unrealistic. Meanwhile, prospective investors are looking elsewhere.

What to watch:

-- The Central Administrative Court is considering numerous appeals to get the projects restarted and has allowed seven companies to continue construction of plants, though they remain barred from operating. Further lifting of injunctions on a case-by-case basis -- eight have recently been given the green light -- could be indicative of progress or some kind of compromise being made.

-- Opposition from affected parties. Public participation in approving new projects is required under the constitution and a swift resolution could be complicated by opposition from environmentalists and locals concerned about pollution.

-- The political crisis. The government's ability to formulate and implement policy is being seriously disrupted.

* THE KING'S HEALTH

The 82-year-old King Bhumibol Adulyadej has been in hospital since September 19. A rare public appearance on May 5, Coronation Day, showed he seems in better health, but his illness has focused attention on what will happen when his reign comes to an end. A key issue in Thailand's political conflict is what role the monarchy and unelected elites will have in running the country. King Bhumibol is widely respected in Thailand so his political influence is accepted by most Thais. But his son and presumed heir, Crown Prince Maha Vajiralongkorn, does not yet command the same popular support as his father. Many Thais and political analysts fear if the crown passes to Vajiralongkorn while political divisions remain unresolved, opposing factions will intensify their struggle, with highly destabilizing consequences.

What to watch:

-- Extent to which privy council members remain a focus of protests. Protests against the royal family are illegal, but the red shirts have targeted senior royal advisers. If privy councilors remain a focus for protests, this is a sign the succession may be less smooth and orderly than many hope.

-- Allegations by the government and army that red shirt leaders are trying to overthrow the monarchy, an effort to discredit the movement that could have dangerous ramifications.

-- Extent to which the foreign media defy the strict lese majeste law and reveal information and images that could complicate the succession. As the crisis has dragged on, the international media has become bolder in its reporting on the royal family, with Australia's ABC recently airing a documentary about the Crown Prince despite loud protests from Thai officials.

* THREAT OF A COUP

Thailand's military and police have a congenital inability to keep out of politics -- there have been 18 actual or attempted coups in 77 years of on-off democracy. The military's latest spell at the helm after the 2006 coup that ousted Thaksin is widely regarded as an economic policy disaster.

What to watch:

-- Divisions in the military. The army top brass firmly back the government, having played a big role in putting together the coalition. But cracks are starting to appear in the military along similar yellow-red fault lines as society. A widening of these divisions heightens the prospect of a coup, or more dangerously, a violent conflict between rival military factions.

-- Disagreements between the army and Abhisit. The military's support of the prime minister has been tested of late, but not to the point of a breakup. However, if Abhisit gives any indication he might call early elections before a pivotal armed forces reshuffle there is a heightened risk of a coup led by royalist generals who fear Thaksin could derail their planned transfer of power to proteges groomed to become the next top brass.

(Editing by Andrew Marshall)