Thai soldiers deployed after Bangkok clashes

BANGKOK (Reuters) - A small bomb exploded in a Bangkok police booth in the small hours of Monday as a stand-off between the Prime Minister and protesters occupying his office entered its seventh day with no sign of either side backing down.

A senior government source said the blast, which shattered nearby windows but caused no injuries shortly after 1 a.m. (2:00 p.m. EDT on Sunday), was a signal the People's Alliance for Democracy (PAD) was taking its campaign to another level.

"The PAD has launched a guerrilla war with us," the source, who asked not to be named, said.

Police echoed his comments, saying they believed it to be the work of agitators trying to depict the police as powerless in the face of the three-month PAD campaign to unseat the elected administration.

"They want to show that the government and the police are too weak to protect the people," national police spokesman Surapol Thuanthong told Reuters. "It is something we expected would have happened."

The PAD, a group of businessmen and activists whose campaign against former Prime Minister Thaksin Shinawatra led to his overthrow in a 2006 coup, has always espoused peaceful protest.

However, last week's raid on a state television station by men armed with knives and golf clubs, as well as the protracted Government House occupation behind razor wire barricades, has brought this into question.

A PAD spokesman denied any responsibility.

"We had no reason to do that. It would only scare away protesters, not bring more people to join. We have other effective "civil disobedience" measures to fight the government without planting a bomb," Parnthep Pourpongpan said.

"I AM NOT AFRAID"

Tensions peaked on Friday when police used teargas and rubber bullets to repel 2,000 protesters trying to storm Bangkok police headquarters. Protesters also shut down three regional airports, all of which have since reopened.

Samak has said repeatedly that he would never bow to the PAD demands, and warned in his weekly radio address on Sunday that his patience was wearing out.

"I am not afraid, but I am concerned about chaos in the nation," he said. "We cannot let the seizure of Government House continue indefinitely without taking action."

Thai shares have fallen more than 23 percent since the protests began in May, and fell just over one percent on Monday, despite some better-than-expected inflation figures.

Nobody knows how the crisis will end but scenarios involve Samak or the PAD caving in, a coup, a police crackdown, a snap election, or even intervention by King Bhumibol Adulyadej.

The revered monarch has stepped into several disputes during his 60-year rule but normally only after bloodshed.

As well as accusing Samak of being an illegitimate proxy of Thaksin, the PAD proclaims itself to be a defender of the King against a supposed Thaksin plan to turn Thailand into a republic.

Both accusations are denied by Samak and Thaksin, who skipped bail on graft charges and fled to London last month.

The PAD campaign against Samak, now in its 100th day, has sucked in support from a variety of state unions, leading to disruptions to rail and port services. Union leaders at state utilities have threatened to cut water and power supplies to government offices and buildings if the authorities use force against the PAD.

On Monday, Sirichai Maingam, union leader at state power producer EGAT, urged back-room staff to take a holiday but said production workers would carry on as normal.

"We are not going to hurt the people as our strike aim is to slow down the government's work," he said.

(Additional reporting by Nopporn Wong-Anan and Ed Cropley)

(Writing by Ed Cropley; Editing by Darren Schuettler and Bill Tarrant)