UPDATE 1-Thai government considers state of emergency after weekend violence
* Govt seriously considering state of emergency
* Protests spread to 18 areas around Thailand
* Reuters poll shows central bank could cut benchmark rate
By Amy Sawitta Lefevre
BANGKOK, Jan 20 (Reuters) - Thai authorities are "very seriously" considering a state of emergency after a weekend of violence in the capital where protesters have been trying for more than two months to bring down the government, the security chief said on Monday.
The violence is the latest episode in an eight-year conflict that pits Bangkok's middle class and royalist establishment against poorer, mainly rural supporters of Prime Minister Yingluck Shinawatra and her brother, ex-premier Thaksin Shinawatra, who was toppled by the military in 2006.
"We're prepared to use the emergency decree ... Everyone involved including the police, the military and the government is considering this option very seriously, but has not yet come to an agreement," National Security Council chief Paradorn Pattantabutr told Reuters after meeting Yingluck.
"The protesters have said they will close various government offices. So far, their closures have been symbolic, they go to government offices and then they leave." he said.
"But if their tactics change and they close banks or government offices permanently, then the chance for unrest increases and we will have to invoke this law."
The emergency decree gives security agencies broad powers to impose curfews, detain suspects without charge, censor media, ban political gatherings of more than five people and declare parts of the country off limits.
The size of the demonstrations in Bangkok has declined, but the Centre for the Administration of Peace and Order (CAPO), a body grouping government and security officials, said small protests had spread to 18 other areas.
"The protesters haven't threatened to shut down government buildings but they are taking their orders from protest leaders in Bangkok so we're keeping an eye on them," CAPO deputy spokesman Anucha Romyanan told Reuters.
One man was killed and dozens of people were wounded, some seriously, when grenades were thrown at anti-government protesters in the city centre on Friday and Sunday.
"I think these attacks have been designed to provoke an army reaction," said Paul Chambers, director of research at the Institute of South East Asian Affairs in Chiang Mai, predicting a measured increase in the violence.
That in turn could prompt the Election Commission to refuse to oversee an election called for Feb. 2, which the main opposition has said it will boycott, he said.
FISCAL POLICY CRIPPLED
The protests led by opposition firebrand Suthep Thaugsuban were triggered by Yingluck's move last year to attempt to push through a political amnesty that would have allowed her brother Thaksin to return home.
The billionaire former telecoms tycoon lives in Dubai to avoid a jail sentence for abuse of power, but is thought to run his sister's government. The protesters want to remove his influence through ill-defined political reforms.
The upheaval threatens economic growth and a small majority of economists polled by Reuters thought the central bank would cut interest rates by 25 basis points to 2 percent this week.
"Fiscal policy is pretty much crippled right now and the onus is on the central bank to boost the economy," DBS Bank in Singapore said in a note, although it did not expect a rate cut this time, saying it would do little to help confidence under present circumstances.
Business is getting nervous. Kyoichi Tanada, president of Toyota Motor Corp's Thai unit, said on Monday he was unsure the Japanese car maker would increase investment in Thailand if the crisis was drawn out.
The government has mostly avoided direct confrontation with protesters while the army, which has staged or attempted 18 coups in 81 years of on-off democracy, has stayed neutral.
The violence is the worst since 2010 when Suthep, at the time a deputy prime minister in charge of security, sent in troops to end mass protests by pro-Thaksin activists.
Suthep faces murder charges related to his role in that crackdown, when more than 90 people were killed, and for insurrection in leading the latest protests.
Yingluck faces legal charges from the anti-corruption agency, which said last week it would investigate her role in a loss-making government rice purchase scheme.
The scheme has won her party huge support in the rural north and northeast. But there is growing discontent among farmers who say they have not been paid for their rice and are threatening to block major roads.
Chambers said the rise in violence could suck the police into the fray.
"(That would provide) Suthep with an excuse to accuse Yingluck of repressing the demonstrators, the army may suggest that the Yingluck government step aside or judicial cases against Yingluck's government may be expedited to push (her party) Puea Thai from power," he said.