(Adds analyst comments, details)

* Thai emergency action has no immediate rating implications

* May cut outlook to negative if "widespread violence" breaks

* Turmoil negative for consumer and business confidence

By Umesh Desai

HONG KONG, Sept 2 (Reuters) - Thailand's political turmoil could harm its ability to attract investment and an escalation of violence may trigger a cut in its rating outlook to negative from stable, Standard & Poor's said on Tuesday.

However, Thai Prime Minister Samak Sundaravej's decision to declare the state of emergency in Bangkok and give the army control of public order had no immediate implications on the Southeast Asian country's BBB-plus rating, S&P analyst Elena Okorotchenko told Reuters in an interview.

"The breakout of widespread violence could make us consider changing the outlook to negative, because then the situation becomes very unpredictable and politically unstable," she said after the emergency measures were imposed.

She said Thailand's ability to draw foreign investment, an imperative because it lagged similar-rated peers in terms of economic wealth, would be hampered in the current environment.

S&P has projected Thailand's 2008 gross domestic product per capita at $4,100, less than half of the median $8,500 for countries in the BBB-category.

"That's where the issue of investment comes in and therefore deteriorating investment climate and falling investor and consumer confidence are playing a negative role in the long term dynamics of the credit ratings," she said.

STRONG EXTERNAL FACTORS

But Thailand had some strong factors supporting its ratings and these were unlikely to reverse quickly.

"There is significant support in terms of reserves to support any external liability at this stage," she said, referring to its net external creditor status.

S&P had warned last year that a delayed return to political stability, however, could erode these strengths and that could hurt the "relatively weak Thai banking system". "With the recent developments all the improvements after the December elections have been almost undone,"Okorotchenko said.

Samak, who leads a six-party coalition after coming first in December's general election, blamed certain people, whom he did not name, for "wreaking havoc" and said their actions were undermining the economy and national unity.

Financial markets were quick to react -- Thai stocks opened more than 2 percent lower before recovering and the Thai baht <THB=> fell to a one-year low.

Thailand's five-year credit default swaps (CDS) <THAILD5UA=GFI> -- insurance-like contracts that protect against defaults and restructuring -- widened by as much as 10 basis points to 150 before tightening to 146 on short covering.

Credit analysts were taking a cautious stand on Thai credit.

"Rating agencies have so far maintained the Baa1/BBB+/BBB+ rating of the sovereign at stable outlook given the strong external position," said Lehman Brothers in a client note.

"But we could see some downward pressure materialise if the persistent political turmoil starts to negatively affect the economy," the note said. (Reporting by Umesh Desai; Editing by Tomasz Janowski)

AlertNet news is provided by