For post-verdict scenarios, click on [ID:nSGE61I05K]
For a factbox with details of the case [ID:nSGE61H076]
By Jason Szep
BANGKOK, Feb 22 (Reuters) - Thai media say the country has entered a "seven-day danger period" before a "final showdown" on Friday. The military is on alert. Police checkpoints are spreading. Judges have been offered safe houses.
A Supreme Court ruling on Friday over whether to confiscate $2.3 billion of assets belonging to ousted former premier Thaksin Shinawatra's family has put Thailand on edge, raising the risk of renewed unrest that could do more damage to Thai markets.
Media call it "judgment day" in a seemingly intractable political conflict pitting the military, the urban elites and royalists, who wear the revered king's traditional colour of yellow at protests, against the mainly rural supporters of Thaksin, who say they have been disenfranchised and wear red.
A ruling in favour of seizing Thaksin's assets could spark a violent backlash by his supporters. But regardless of which way the court rules, Thailand's protracted political crisis is likely to rumble on, and remain a drag on investment and confidence.
"There is no good outcome because whatever the verdict is, there will be reaction from one political group or the other. We are in for a long and grinding battle," said Warut Siwasariyanon, head of research at Finansia Syrus Securities in Bangkok.
"Neither side is showing signs it can afford to compromise."
VIOLENCE ON THE STREETS?
The verdict will be read out on Friday afternoon and markets will probably be closed before they can gauge reaction to the ruling. They reopen on Tuesday after a long weekend, and will face selling pressure if violence has erupted or seems likely.
"The scenario that most people expect is that all of his assets will be confiscated and that there will be some backlash from the red shirts," said Danny Richards, economist and senior Asia Editor at the Economist Intelligence Unit.
"Investors don't want to see this escalate into any major violence on the streets that would bring the army in."
But markets have had plenty of time to factor in Thailand's higher risk level, and foreign investor participation in the local bond, currency and stock markets is fairly low, meaning the size of any sell-off next week may be limited -- just as it was during previous flashpoints in 2008 and 2009.
Because confiscation of all his assets could be politically explosive, some analysts expect a compromise, with the court giving Thaksin back as much as $1.4 billion which his lawyers say was earned before he entered office and is owed his family.
"Seizing all the assets is still possible but it appears to be a very dangerous option and I think everybody knows why it is dangerous," said Pavin Chachavalpongpun, a visiting research fellow at the Institute of Southeast Asian Studies in Singapore.
"I think the judges are really considering the repercussions, so there might be some kind of compromise."
Such a decision could limit immediate fallout in markets.
"Partial seizure of the assets is what financial markets prefer because both sides can claim a victory, which will help limit the degree of violence," said Prapas Tonpibulsak, chief investment officer at Ayudhya Fund Management.
Thailand's stock market .SETI has lagged regional peers this year, down 3.91 percent so far compared with a 1.21 percent drop in the Philippines, a 0.5 percent decline in Malaysia, and a 1.18 percent gain by Indonesian stocks. Dealers say political uncertainty is a key factor weighing on the Thai market.
The cost of insuring Thai sovereign debt -- often used as a measure of political risk -- has risen sharply this year. Five-year credit default swap spreads THGV5YUSAC=R hit a nine-month high of 135.18 basis points earlier this month but have since moved lower and were quoted at 114 on Monday.
"The verdict may be a critical turning point for Thai politics in the months ahead," Standard Chartered said in a research note on Monday.
It is also a critical moment for Thaksin, a 60-year-old former telecommunications tycoon who became the first leader in Thai history to win election twice, both in landslides, after building support in the vote-rich north and northeast.
His supporters say he revolutionised Thai politics with populist policies aimed at eradicating poverty, from universal healthcare to rural cash handouts. His critics accuse him of authoritarianism, corruption and of undermining the monarchy.
Friday determines the fate of assets frozen after he was ousted in a 2006 coup. Convicted of corruption and sentenced in absentia to two years in prison, he remains a political force, often rallying supporters via video link from self-exile in Dubai or taunting the government from across the border in Cambodia.
Anti-graft bodies and public prosecutors say Thaksin used government policies during five years in office to enrich his family's telecoms business, Shin Corp. They have urged the nine-judge panel to confiscate every asset his family earned from selling shares in Shin to Singapore's Temasek Holdings in 2006.
Thaksin's lawyers say the case is politically motivated.
The political crisis has taken a toll on Thailand and its $264 billion economy, triggering frequent protests, riots, airport blockades, and three changes in government in 15 months.
"Red shirt" leaders say they have no plans to mobilise on Friday after holding almost daily protests nationwide this month, but they won't stop Thaksin supporters from gathering outside the court and have called for as many as a million people to take to the streets sometime after the verdict to topple the government.
"We do not want to be seen pressuring the court to go one way or the other," said Jaran Ditsatapichai, a "red shirt" leader. "We will have to figure out a way to do it safely and in a way that can really paralyse the government."
Security agencies are taking no chances. Judges have been offered "safe houses". Military checkpoints have gone up. Soldiers and special police forces are on alert. The central bank asked commercial banks on Sunday to start tightening security.
The "red shirts" say that regardless of the verdict, they will continue a campaign to topple the government.
"I am not here fighting for Thaksin. I am fighting for democracy," said Siriwan Meesak, 60, a retired civil servant who was among about 1,000 "red shirts" who rallied outside Bangkok Bank's headquarters on Friday, forcing it to shut its doors.
"Whatever the verdict, I will still protest." (Additional reporting by Ambika Ahuja and Viparat Jantraprap; Editing by Alan Raybould and Andrew Marshall)