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Grenade explosions that wounded two soldiers at a Thai military base raised tensions in Bangkok on Monday as tens of thousands of anti-government protesters massed at another barracks on the outskirts of the city.

It was unclear who was behind the attack or whether it was directly linked to the protests by red-shirted supporters of ousted premier Thaksin Shinawatra. But it came shortly after Prime Minister Abhisit Vejjajiva rebuffed demands by protesters to dissolve parliament and call fresh elections by midday.

Backed by the powerful military and establishment elite, Abhisit told a live national broadcast, flanked by members of his shaky coalition, the time was not right for a poll, which analysts say Thaksin's allies would likely win.

Army Colonel Nattawat Attanibutt said an initial investigation showed the grenades were fired into the sprawling army compound by a M-79 grenade launcher from outside the base on Viphavadi-Rangsit Rd.

The soldiers were hospitalised. "One received injuries in the abdomen and the other was wounded in the arm," Nattawat said.

Despite the increase in political tension, foreign funds have been flowing into Thailand's stock market -- to the tune of $812 million over the past three weeks -- as investors seek to benefit from a swift rebound in Southeast Asia's emerging economies.

As a sign of this, Thai stocks were firmer on Monday after jumping 63 percent last year despite frequent protests, including Thailand's worst street violence in 17 years in April.

Recent foreign buying was based on three factors: Thai assets are already trading at a substantial risk discount, the economy has rebounded well from the the global downturn despite bouts of unrest; and, Abhisit is widely expected to survive the protests.

The turbulence adds to a prolonged political crisis broadly pitting the military, urban elite and royalists -- who wear yellow at protests and back Abhisit -- against mainly rural Thaksin supporters who wear red and say they are disenfranchised.

Cheering, blaring horns, and waving flags, the protesters had marched to a separate military base on the outskirts of Bangkok where Abhisit set up a crisis headquarters. After their deadline for dissolving parliament passed, protesters retreated from the military base to their main protest site, reinforcing speculation Abhisit would prevail in the "red shirt" showdown.

"We have heard the answer from Abhisit. We have done what we came to do and we will assess what to do next," Veera Musikapong, a protest leader, told the crowd under scorching midday sun.

Crowds chanted: "Abhisit, get out. Elite, get out."

The protests, which began on Friday, reached as many as 150,000 people on Sunday but have been peaceful and orderly. Most of the protesters travelled from Thailand's poor, rural provinces, piling into pick-up trucks, cars and even river boats, illustrating Thaksin's influence despite his removal in a 2006 coup, a graft conviction and self-imposed exile.

Thaksin's allies are likely to win the next election, which must called by the end of next year, just as they have won every poll held since 2001. The military and urban elite could seek to thwart that result, possibly with a coup, as in 2006, or a judicial intervention, as in 2008.

Thailand was plagued by political upheaval in 2008, when yellow-shirted protesters who opposed Thaksin's allies in the previous government occupied the prime minister's office for three months and then blockaded Bangkok's international airport until a court ousted the government.

Reuters