UPDATE 1-Thai govt seeks talks with Thaksin to end protest

(Adds reaction from protest leader)

By Kittipong Soonprasert

BANGKOK, April 1 (Reuters) - Thailand's government offered on Wednesday to negotiate with exiled Prime Minister Thaksin Shinawatra to end a week-long street campaign threatening its efforts to stave off an economic recession.

The offer was swiftly rejected by a leader of the pro-Thaksin group that has surrounded Prime Minister Abhisit Vejjajiva's offices in Bangkok to force him out, the latest escalation in Thailand's three-year-old political crisis.

"Our objective is to remove them. Why would we talk to them?" said Jatuporn Prompan, a leader of the United Front for Democracy against Dictatorship (UDD), an extra-parliamentary group that accuses Abhisit of being a pawn of the military.

Police have taken no action against the thousands of red-shirted protesters despite a court order on Tuesday that they allow ministers to enter Government House.

Deputy Prime Minister Suthep Thaugsuban said the government wanted to avoid violence and he offered talks with Thaksin, who has exhorted his supporters to "bring back democracy" in nightly video speeches from an undisclosed location.

"If talks can bring peace to the country, I am ready to meet him anywhere, because Thaksin is the only person that can end the siege," said Suthep, who is in charge while Abhisit attends the G20 Summit in London.

Suthep tempered his conciliatory remarks, however, by rejecting certain key demands made by Thaksin, such as his call for a snap election.

In an interview with Reuters on Monday, Suthep accused the UDD of seeking to provoke a violent incident and said he had tried previously to negotiate with Thaksin but was rebuffed. [ID:nBKK441024]

Thaksin, a former telecoms billionaire who was ousted in a bloodless 2006 coup, lives in exile after being convicted on conflict of interest charges last year.

His absence has not ended the political impasse between Bangkok's royalist and business elite, who accused Thaksin and his allies of corruption and abuse of power, and the rural and urban poor who loved his populist policies.

ECONOMY IN TROUBLE

Economists are worried the latest unrest will hurt efforts to revive an economy hit by falling exports due to the global economic downturn. Despite a government stimulus package, the economy is expected to shrink in 2009. [IDn:BKK465728].

"While the government's economic stimulus measures have been enacted, we're afraid that the ongoing demonstrations will undo the government's effort," Korbsak Sabhavasu, a deputy prime minister overseeing economic policy, told the Bangkok Post. The political uncertainty has begun to weigh on the Thai stock market .SETI, which edged lower on Wednesday. Most other Asian markets ended higher on the day.

UDD leaders have vowed to stay until Abhisit steps down but have promised not to invade Government House or other facilities.

Last year, the anti-Thaksin People's Alliance for Democracy (PAD) occupied the compound for three months and seized Bangkok's main airports for more than a week in a campaign that helped force a pro-Thaksin government from power.

Bangkok's Civil Court is considering an appeal by the UDD against the order to allow ministers into Government House. The group has called on supporters from across the country to converge on Bangkok on April 8.

"We will stay here and get ready for our biggest rally ever next Wednesday," Weng Tojirakarn, a UDD leader, told Reuters. (Additional reporting by Chalathip Thirasoonthrakul and Panarat Thepgumpanat) (Editing by Darren Schuettler)