BANGKOK – The Thai government considered new measures to revive the economy on Wednesday, a day after the end of violent protests that further dented confidence in a country heading into recession.

A state of emergency imposed in the capital on Sunday remained in place and security forces tightly guarded the area around the prime minister's office, the epicenter of protests the past three weeks.

Finance Minister Korn Chatikavanij told the Financial Times that Thailand may expand its stimulus package and increase borrowing to boost confidence and deal with the economic costs of political turmoil.

We were already anticipating revenue shortfalls in the current fiscal year and that shortfall is almost certainly going to be larger now as a result of what happened over the last 72 hours and so we are going to have to make sure we have sufficient fiscal space, he said in an interview.

Regardless of whatever fiscal measures the government may adopt, few believe the end of this round of protests heralds a sustainable return of stability to Thailand's politics.

Prime Minister Abhisit Vejjajiva's position has been strengthened, but opposition to him remains strong and the red shirt protesters have vowed to return even though some of their leaders have been arrested.

Financial markets were closed for the three-day Thai New Year holiday, but will reopen on Thursday. Shares and the baht were expected to come under selling pressure.

Tisco Securities strategist Viwat Techapoonphol expected foreign selling to lop between 3 and 5 percent off the main Thai stock index, which has failed to join in the rally on other bourses in recent weeks due to the political crisis.

Selling pressure will come from foreign funds constrained by their policy of not investing in countries where there is a state of emergency in place, he said.

The locally-driven bond market would be influenced positively by the developments, said Edward Lee, regional head of fixed income strategy for Asia at Standard Chartered Bank.

Thailand's five-year CDS narrowed to 205/220 bps from 210/230 on Tuesday, but sentiment remains fragile after the finance minister's comments.

Moody's and Standard & Poor's, which already have a negative outlook for Thailand's sovereign ratings, said on Monday that renewed political unrest this week had increased the risk of a sovereign downgrade.

Though markets will open, the government has extended the New Year holiday the rest of the week to control the flow of people back into Bangkok, because some protesters may come in from the countryside in a mood to fight, authorities said.

ARREST WARRANTS

Police said arrest warrants had been issued for former Prime Minister Thaksin Shinawatra, the exiled figurehead of the red shirt protest movement, and 13 leaders of the United Front for Democracy against Dictatorship (UDD) for violating state of emergency regulations. At least three were already in custody.

Army spokesman Colonel Sansern Kaewkamnerd said late on Tuesday a few hundred protesters, not wearing their usual red shirts, had gathered in an open space near the royal palace, but they had been dispersed without force before midnight.

Newspapers that had lambasted the prime minister for the collapse of an Asian summit at the weekend after protesters invaded the venue in the resort town of Pattaya, praised his handling of the violence in Bangkok.

The government ... should be commended for their demonstration of restraint in the handling of the rioting and, more importantly, for the judgment in not rushing for a final break-up of the protesters at Government House, even though they had the capability to do so and the legitimacy as well, the Bangkok Post said in an editorial.

Two people died in skirmishes between locals and red shirts, the authorities said, while more than 100 were injured in clashes between soldiers and protesters trying to blockade a major road junction on Monday.

But a three-week occupation of Government House, Abhisit's office, ended without bloodshed on Tuesday when Thaksin supporters decided to surrender with hundreds of troops and riot police surrounding them.

Thailand's intractable political divide broadly pits royalists, the military and the urban middle-class against the rural poor loyal to Thaksin.

(Additional reporting by Apornrath Phoonphongphiphat in Bangkok, Andrew Marshall in Singapore and Umesh Desai in Hong Kong; Writing by John Ruwitch; Editing by Bill Tarrant and Jeremy Laurence)

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