Grenade wounds 8 Thai protesters ahead of rally

BANGKOK (Reuters) - A grenade blast wounded eight protesters near the Thai prime minister's office on Saturday, raising tensions on the eve of a major rally billed as a "final battle" to oust the government.

Two of the eight wounded members of the People's Alliance for Democracy were in critical condition after the early morning blast near Government House, occupied by the PAD since August.

"An M-79 grenade exploded 50 meters outside our camp and wounded our brothers as they patrolled nearby," PAD co-leader and retired general Chamlong Srimuang told supporters.

The PAD is calling Sunday's march on parliament "its final battle" to oust the government, which it blames for a grenade attack on their Bangkok protest site on Thursday that killed one person and wounded 23.

Prime Minister Somchai Wongsawat -- who the PAD accuse of being a puppet of exiled leader Thaksin Shinawatra, his brother-in-law -- has denied any involvement in the grenade blast.

Somchai is attending an Asia-Pacific summit in Peru until the latter half of next week.

Police are braced for violence at the rally and have asked the army for reinforcements to prevent a repeat of last month's bloody street battles, in which two people were killed and hundreds wounded.

"Judging from the tone of their speech, they want to incite violence and we will have to find ways to avoid it," Major General Anan Srihiran of the Metropolitan Police Bureau told Reuters on Friday.

Anan said police will be equipped with water cannon and tear gas. The army, navy and air force had agreed to send 3,000 "riot troops" to help out on Sunday and Monday, he added.

Chamlong later told a news conference the PAD "will gather in peace," but it was determined to knock out the government.

"Our major rally this time is to show our strength and that we will not surrender to the government's use of force," he said.

House speaker Chai Chidchop told TNN News television that members of parliament would meet on Monday as planned to debate legislation related to next month's ASEAN regional summmit in the northern city of Chiang Mai.

"We need to meet. I beg the media, for the country's sake, to tell protesters that we need to do it," Chai said, adding that proposed changes to the constitution which have angered the PAD would not be debated during the session.

Major bloodshed would raise the chances of a military coup only two years after the army's removal of Thaksin, although army chief Anupong Paochinda has said repeatedly a putsch would do nothing to resolve Thailand's fundamental political rifts.

Public sector unions have called for a nationwide strike on Tuesday unless Somchai stands aside, a threat that, if carried out, would deepen the economic impact of a political crisis now in its fourth year.

The PAD is led by a group of royalist businessmen, academics and activists who say they are fighting to prevent Thaksin, now living in exile, from returning to power following his removal in a bloodless 2006 coup.

Its campaign, which started in late 2005 and contributed heavily to the coup, has paralyzed government decision-making and exacerbated the threat of recession in Thailand as its export-oriented economy takes a hit from a global slowdown.

(Additional reporting by Wilawan Pongpitak)

(Editing by Darren Schuettler and Bill Tarrant)