* Protest leader had suggested a televised debate with the PM
* Pressure for talks grows, with deadly attacks on the increase
* Army chief noncommittal on possibility of a military coup
* Protest numbers dwindling but Bangkok intersections still blocked
* Economy suffering; factory output drops in January (Adds economic indicators, rice deal with China)
By Amy Sawitta Lefevre and Pracha Hariraksapitak
BANGKOK, Feb 28 (Reuters) - A senior Thai minister rejected a proposal for talks from the leader of an anti-government protest movement on Friday as demonstrators rallied at ministries to put pressure on Prime Minister Yingluck Shinawatra to step down.
Protest leader Suthep Thaugsuban had suggested that he and Yingluck should hold a televised debate.
"Yingluck is the legitimate leader of the country and Suthep is a man with warrants for his arrest who heads an illegal movement. The prime minister should not talk to Suthep," said Labour Minister Chalerm Yoobamrung, who oversees a state of emergency imposed last month.
"Suthep is only proposing negotiations, even though he dismissed them before, because protest numbers are dwindling."
The protesters have blocked big intersections in the capital, Bangkok, since mid-January and forced many ministries to close as part of a four-month campaign to push out Yingluck and eradicate the political influence of her brother, ex-premier Thaksin Shinawatra, seen as the real power in Thailand.
The crisis is hurting the economy with confidence and domestic demand both down. Data on Friday showed factory output fell 6.41 percent in January from a year before.
In some good news for the government, China is to buy 400,000 tonnes of Thai rice, providing funds to help pay farmers who have been protesting because a state rice-buying programme has run out of money.
On Feb. 4, China scrapped a deal to buy 1.2 million tonnes of rice because of an investigation by the Thai anti-graft agency into various deals between Thailand and China.
Yingluck was on Thursday served with charges of negligence relating to the rice programme. The case could eventually see her forced from office.
Violence is on the increase, with almost daily gun and grenade attacks around Bangkok protest sites by unidentified people, and 23 people have been killed since November.
Army chief Prayuth Chan-ocha, asked by reporters if the violence would trigger a coup, remained noncommittal and expressed exasperation at the question being put to him time and again.
"We must not discuss this every day," he said. "I can't promise whether there will be a coup or not."
Protest leader Suthep's debate offer on Thursday came after weeks of refusing to talk.
However, in a speech to supporters later, he showed his more combative side, blaming Yingluck for weekend attacks on protesters in which five people were killed, including four children.
"You have murdered four young, innocent children, Yingluck," he said, challenging her supporters in the rural north and northeast to a fight in the capital.
"Come to Bangkok and try to start a civil war," he said.
Yingluck, speaking in the northern city of Chiang Mai, gave a guarded response to the idea of a debate on Thursday.
Talk of a possible civil war has picked up recently but Prayuth said he doubted that outcome: "We must control the situation using the law."
MORE VOTING ON SUNDAY
The crisis broadly pits Bangkok's middle-class and southern opposition supporters, backed by the royalist establishment, against the largely rural supporters of Yingluck and Thaksin.
After a period of calm following Yingluck's election win in 2011, opposition swelled when her government tried to push through a political amnesty that would have let Thaksin return from self-imposed exile without having to serve a jail sentence for graft. He says the charges were politically motivated.
Thaksin was toppled by the army in 2006. The military has tried to stay above the fray this time but Yingluck is still facing multiple challenges from the courts, which threw out two governments allied to Thaksin in 2008.
On Thursday, she was served with charges relating to the rice scheme that has failed, leaving hundreds of thousands of farmers unpaid and costing taxpayers billions of dollars.
Yingluck faces removal from office and a five-year ban from politics if she is found guilty. She has until March 14 to try to refute the charges, after which the anti-corruption agency will decide whether to take the case further.
She called an election for Feb. 2 to try to end the crisis but it was disrupted by the protesters.
The Election Commission will try to hold polls on Sunday in five provinces where voting was not completed. Election re-runs planned for April in other provinces have been suspended pending a court decision on procedures.
The protesters want to set up a "people's council" of unspecified worthy people to force through political and electoral changes before a new general election is held, hoping that will stop parties loyal to Thaksin from winning.
Although Suthep still manages to draw big crowds when he marches around the city, the number of protesters has dwindled and many ministries have been able to reopen.
Critics have accused the military of siding with the protesters, a charge denied by army chief Prayuth.
"If indeed we sided with the protesters we would already be with the protesters. We have sent soldiers to look after security around protest sites for everyone's benefit." (Additional reporting by Kittipong Thaicharoen and Orathai Sriring; Writing by Alan Raybould; Editing by Robert Birsel)
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