* Police ordered to protect PM's office but not confront protesters
* Small group of protesters briefly enters PM's office compound
* PM's snap election fails to defuse crisis (Recasts with comment from military, Yingluck, economic outlook)
By Amy Sawitta Lefevre
BANGKOK, Dec 12 (Reuters) - The head of Thailand's armed forces has turned down a request for a meeting in a huge blow to the leader of anti-government protesters who had asked police and military chiefs to choose sides in the crisis amid dwindling public support.
Prime Minister Yingluck Shinawatra has called a snap election for Feb. 2 but that has not satisfied the protesters, whose leader, Suthep Thaugsuban, wants an unelected "people's council" to run the country.
But the number of demonstrators on the streets is falling. On Monday, 160,000 had gathered round Yingluck's office but the number has dropped to just a few thousand since then.
The politically powerful army has staged or attempted 18 coups in the past 80 years, including the ousting of Yingluck's brother, Thaksin Shinawatra, in 2006, but it has said it does not want to get involved this time although it may mediate.
"The chief of the armed services will not meet Mr Suthep today," deputy army spokesman Werachon Sukondhapatipak told Reuters, implying that the heads of the army, navy and air force would not meet Suthep either.
It was not immediately clear if the police chief would meet Suthep, but this appeared unlikely as the police are traditionally aligned with Thaksin.
The eight-year, on-and-off political conflict centres on Thaksin, a former telecommunications tycoon popular among the rural poor. The protesters view Yingluck as his puppet.
Thaksin, who lives in self-imposed exile, courted rural voters to win back-to-back elections in 2001 and 2005 and gained an unassailable mandate that he used to advance the interests of major companies, including his own.
He was convicted in absentia of graft in 2008 but has dismissed the charges as politically motivated.
His opponents are Thailand's royalist elite and establishment who feel threatened by his rise. Trade unions and academics see him as a corrupt rights abuser, while the urban middle class resent what they see as their taxes being used as his political war chest.
A small group of protesters briefly entered the premises of Government House on Thursday and protest leaders said they would cut water and power to the complex if police did not withdraw. The police held their positions and there was no confrontation.
"Last night protesters tried to cut electricity at Government House and fired slingshots at police on duty," police spokesman Piya Utayo said in a televised statement.
"Some protesters and a third party have tried to escalate the situation," he said, without elaborating.
A police officer on the premises, who declined to give his name because he was not authorised to speak to the media, said several small, crude explosives described as "ping pong bombs" had been thrown into the grounds on Thursday. No one was hurt.
Moody's Investors Service, a rating agency, said in a note the crisis was negative for Thailand's sovereign rating.
"Prolonged protests will weigh on an already fragile growth outlook for 2014," it said.
"In addition, heightened political tensions have marred investor confidence, as reflected in the accelerated decline in Thailand's official foreign exchange position since late October," it said. Foreign reserves fell to $167.5 billion on Nov. 29 from $173.3 billion on Oct. 25.
Analysts say the economy would be hurt if infrastructure projects suffered further delays, as seems likely, and the current account would suffer if tourists were scared off.
Yingluck said in a televised statement she would invite people from all walks of life to a meeting on Dec. 15 to discuss "a peaceful way to reform the country", which could be further debated and implemented after the election.
Suthep has offered little in the way of policy proposals. His sometimes bewildering statements have included a call for police to arrest Yingluck for treason, an order to civil servants and security forces to report to him, not the government, and for citizen "peacekeeping forces" to take over from police.
He has rejected the early election and wants an unelected "people's council" to run Thailand. Yingluck is caretaker prime minister until the election but Suthep wants her and her ministers to step down now.
"If a plane crashed with the whole cabinet in it and they all died, Thailand would still go on," Suthep told supporters late on Wednesday.
Thaksin's supporters have said they would weigh in to defend Yingluck if Suthep appeared poised to overthrow her. Jatuporn Promphan, a leader of a pro-Thaksin group, promised to mobilise crowds that would dwarf the anti-government protests.
Thaksin's "red shirt" supporters brought central Bangkok to a halt in April and May 2010 in protests aimed at forcing then Prime Minister Abhisit Vejjajiva to call early elections.
That protest was put down by the military. More than 90 people, mostly Thaksin supporters, were killed over the period.
Abhisit and Suthep, a deputy prime minister to Abhisit, have been accused of murder related to those events.
Abhisit was formally charged with murder at Bangkok's criminal court on Thursday and granted bail. The next hearing was set for March 24, 2014, but the case could drag on for months, or even years. Suthep did not turn up. (Writing by Martin Petty and Alan Raybould; Editing by Nick Macfie)