SCENARIOS - Is Thailand headed for peace or protests?

Thailand's Prime Minister Abhisit Vejjajiva (L) greets Justice Minister Pirapan Salirathavibhaga during a no-confidence vote at the Parliament in Bangkok June 2, 2010.

BANGKOK (Reuters) - Thai Prime Minister Abhisit Vejjajiva won some breathing space in parliament this week and can now focus on addressing a yawning social divide that erupted into the bloodiest chapter in Thailand's recent history.

With the pressure to call elections eased, below are some scenarios about what could unfold in the next few months:

STALEMATE

After last month's bloody crackdown on "red shirt" anti-government protesters in Bangkok, new protest leaders could emerge who question Abhisit's suitability to lead the reconciliation process and blame his government for the violence.

Elections were one of the main demands of protest leaders rounded up last month, and many of the five points on Abhisit's original peace plan are open to debate.

Abhisit survived this week's no-confidence motion in parliament, brought by the opposition Puea Thai Party, but it could still deepen rifts and undermine the peace process, as would tensions within the ruling six-party-coalition.

On the other side, Abhisit's establishment supporters and the rival "yellow shirts" movement representing the urban middle class could oppose his overture to the red shirts, who they say were responsible for the violence.

That would heighten the sense of stalemate, which could eventually lead to a revival of protests by the rural and urban poor, possibly after October's rice harvest.

LIKELIHOOD: There is a strong chance this will happen. Compromise is unlikely, with insincerity and divisiveness on all sides.

MARKET IMPACT: Foreigners might tap Thailand's resilient stock market during a stalemate, but a resumption of protests could derail investment. Foreign investors are now scarce, selling a net $2.04 billion of stocks between the time of the first major violence on April 10 and May 31.

"Equities might perform poorly if growth prospects were curtailed because of reduced government spending, as a result of the stalemate. Bonds could rally for the same reason," said Edward Teather, a regional economist with investment bank UBS.

"Renewed protests would likely cause weaker equities and rallying bonds. The currency could be supported as imports undershoot exports."

UNCERTAIN POLLS, RED SHIRTS REGROUP

Abhisit is unwilling to set an election date until order can be guaranteed. The red shirts would vow to fight on, accusing him of trying to cling to power.

The movement might regroup in north and northeast strongholds as new leaders emerge, with Bangkok-bound rallies demanding new polls. Sporadic and mysterious gun and grenade attacks on government targets -- just like in April and May -- would keep the country on edge.

LIKELIHOOD: This is also a strong possibility. The protesters' demands haven't been met and many feel they have come too far, and too many lives have been lost, to quit now.

MARKET IMPACT: A return to violence, even if sporadic, would undermine consumer and business confidence.

"A tipping point could be reached when investors see political violence as the norm rather than the exception and exit markets," said Danny Richards of the Economist Intelligence Unit.

"This would result in a steeper drop in the baht and the stock market, while widening CDS (credit default swaps) spreads and pushing up bond yields. However, unless foreign assets or important logistical infrastructure are specifically targeted, capital flight could still be contained."

IMPERFECT ELECTIONS

The reconciliation plan could move ahead after a few months of debate. Abhisit could then set an election date in the first quarter of 2011 if all sides pledge to remain peaceful, honour the result, and refrain from protests and vote-buying.

But heated campaigning with occasional violence and cries of foul play and intimidation would set the stage for disagreement over the result and increase the potential for stalemate, unrest and more protests.

LIKELIHOOD: Disagreements and a bumpy ride in the run-up to polls are very likely. However, to get to this stage in the first place would be a tough task because an agreement on polls and a peace plan will likely remain elusive.

MARKET IMPACT: An agreement would lift markets but investors would worry about what would happen after the election and many would remain on the sidelines. A currency correction would be possible, depending on the level of unrest, economists say.

ABHISIT STEPS DOWN

If Abhisit's peace efforts are rejected and the process stalls, an alternative could be found from within his coalition, probably a junior partner acceptable to all parties.

The new prime minister would then set an election date and, seeing a chance for both power and peace, all sides would promise to play fair in the run-up to polls.

LIKELIHOOD: Not very likely. Despite criticism from red shirts and even his supporters, Abhisit is no quitter.

MARKET IMPACT: This would give a boost to markets since an election and a new premier might placate the red shirts and increase chances of medium-term stability. Again, uncertainty over the post-election period would be a concern.

(Editing by Jason Szep and Paul Tait)