* University index rises a 3rd straight month, at best since Aug 2013
* Sentiment aided by infrastructure plans, better economic outlook
* Army took power in May in bid to end unrest, revive economy
* Confidence should improve steadily - professor
By Kitiphong Thaichareon
BANGKOK, Aug 7 (Reuters) - A university's index of Thai consumer confidence rose for the third month in July, suggesting domestic demand might be improving after the army seized power and pledged to fix an economy battered by prolonged political tensions.
The consumer confidence index of the University of the Thai Chamber of Commerce rose to 78.2 in July, the highest level since August 2013. For June, the number was 75.1.
The army seized power on May 22. Through April, the index fell 13 straight months, reaching a trough of 67.8. From November, the declines were fuelled by months of sometimes violent political crisis, which hurt consumption, investment and tourism.
"Consumer confidence picked up due to the stable political situation," Thanavath Phonvichai, an economics professor at the university, told a briefing. "Confidence is expected to improve steadily, with consumption the key economic driver in the second half."
Thailand's economy, Southeast Asia's second biggest, contracted 2.1 percent in January-March from the last three months of 2013 and 0.6 percent from a year earlier.
Second quarter and first half GDP data will be released on Aug. 18.
Exports, equivalent to more than half of the economy, have long been sluggish, while imports have slumped and factory output has fallen for more than a year, showing that pillars of the economy are shaky.
CENTRAL BANK SEES GAINS AHEAD
But policymakers and businesses are hopeful about the second half, predicting a rebound from a likely contraction in the first half.
On Wednesday, when its benchmark interest rate was left at 2 percent, the central bank said it believed government policies would boost the economy later this year.
In June, the Bank of Thailand slashed its 2014 economic growth forecast to 1.5 percent from 2.7 percent, but projected 5.5 percent growth next year.
The military government has made delayed payments to rice farmers and is working to fast-track dormant spending plans. It has approved urgent infrastructure projects and accelerated the approval process of big investment projects.
Last week, Thailand's junta named a majority of active and retired members of the security forces to an interim legislature of 200 people, as it seeks to keep tight control over the body it will task with enacting sweeping reforms. The assembly will open later on Thursday.
Thanavath of the university said consumers "think the formation of an legislature and the next prime minister will be the key factor to get purchasing power back."
ARE SALES IMPROVING?
Improving sentiment about the Thai economy does not necessarily mean consumer sales are already rising.
Phattaramon Jaemjaeng, a 24-year-old master's degree student, said that while the situation is "getting better with more confidence coming back, I have to delay purchasing a new phone for now".
Advanced Info Service, Thailand's biggest mobile phone operator, this week cut its 2014 revenue growth target to 1-2 percent from 6-8 percent.
But the company said growth in the second half "is expected to accelerate on the back of improving consumer confidence."
CP All Pcl, Thailand's largest convenience store chain, on Wednesday reported a 15 percent drop in quarterly net profit for April-June, mainly due to higher costs and slower sales growth after the political unrest. Analysts expect earnings to recover in the second half.
Thai banks expect consumer demand for home loans to pick up in the latter half amid signs of an improving economy and domestic confidence.
(Additional reporting by Pairat Temphairojana; Writing by Orathai Sriring; Editing by Richard Borsuk)