By Pracha Hariraksapitak

BANGKOK, March 29 (Reuters) - Thai coup leaders were to press Prime Minister Surayud Chulanont on Thursday to use tough emergency powers against small, peaceful but growing demonstrations in Bangkok.

Led by army chief General Sonthi Boonyaratglin, who says he is worried the protests will get out of hand and derail the return to democracy he promised by the end of this year, the move has unnerved investors and outraged activists. Thai shares <.SETI> slipped 0.25 percent in early trade as investors waited for the outcome of the meeting. The main index dropped 1.4 percent on Wednesday on news of Sonthi's request.

"A decision to resort to an emergency decree is a serious threat to democracy," said Waeng Tochirakarn, leader of the Confederation for Democracy, which wants an immediate return to electoral politics.

"It destroys fundamental democratic rights and freedom as it empowers government officials to freely carry out house searches, arrests, confiscate printed materials. We will oppose this to the end," he said.

"We will not be cowed and will continue to rally against any coup."

The decree, first issued by Prime Minister Thaksin Shinawatra three years ago to contain a separatist insurgency in the Muslim deep south, allows for detention without charge for 30 days, phone taps, intercepting e-mails and press censorship.

Surayud, a retired general installed after the bloodless Sept. 19 coup that ousted Thaksin, said a decision would be taken after his meeting with the coup leaders on Thursday afternoon.

"It would be for national security. We are concerned that there might be violence or confrontations that lead to clashes," he told reporters.

"DRACONIAN LAW"

The coup leader said he wanted more police and soldiers at the next anti-coup rally, scheduled for Friday, because of the danger of things getting out of hand.

But critics say he is overreacting to protests which have grown bigger in the past month but have remained peaceful, like those against Thaksin last year that drew up to 100,000 people.

"Almost out of the blue, the CNS chairman wants Bangkok placed under the most draconian law in Thai history," the Bangkok Post newspaper said, referring to the Council for National Security, the name the coup leaders have given themselves.

Even if some of the anti-coup rallies involved Thaksin supporters, they had a right to speak out in a peaceful manner, the Bangkok Post said.

"That is a vital part of democracy," it said. Last weekend, the largest anti-coup rally so far drew 3,000 people to Bangkok's glittering Grand Palace where they demanded an immediate election and threatened to boycott a referendum on a constitution a military-appointed committee is writing.

But Thailand has a history of protest demonstrations against military governments degenerating into bloody clashes, most recently in May 1992 when the deaths of dozens of civilians forced a military-backed government to step down.

"Clearly the junta is determined to prevent any open, large-scale opposition to its regime," HSBC economist Frederic Neumann said in a note to clients. "The road is bound to get bumpier still before the dust settles."

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