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UPDATE 1-Death of beloved Thai king unlikely to cause major economic disruption

(Updating with comments from Thai prime minister, Bower Group comments)

SINGAPORE Oct 13 Thailand is unlikely to face major economic disruption after the death of revered King Bhumibol Adulyadej, although many people in the country will be grief stricken, some risk analysts and diplomats said.

The passing of the 88-year-old king, which followed a series of major health problems in recent years, was announced by the palace on Thursday.

Prime Minister Prayuth Chan-ocha announced that government officials will mourn for one year and that Thai people have been asked not to hold festivities for the next 30 days.

However, he did ask businesses and individuals to keep investing. "On the economic side, whether it's the stock market, trade, investment and business sector, please don't stop," he said.

The military government has pushed through a new constitution that it hopes will ensure its oversight over stable government for years to come and it looks firmly in control for a royal transition.

The government might postpone to 2018 a general election scheduled for next year, and Thai stocks and the baht currency are likely to be volatile immediately after the king's death, the Eurasia Group of risk analysts said in a report issued before the announcement of the king's death.

But given a smooth transition, major disruption is not expected, according to five diplomats in Bangkok who spoke to Reuters.

"We expect the royal succession to designated heir Crown Prince Maha Vajiralongkorn will be stable and that market volatility around the king's death will not be long-lasting," Eurasia Group said.

Overall, the impact on the investment environment will be "relatively minor" and limited to what is likely to be an initial mourning period of 100 days, it added.

There is likely to be a drop in some economic activity, said Ernest Bower, who heads the Bower Group Asia business consultancy. Businesses will "experience a temporary drop in sales as Thais limit consumption during the mourning period," he said.

Bower also said there will also be some increased absenteeism and lower productivity.

The Stock Exchange of Thailand's benchmark index fell as much as 6.9 percent on Wednesday to its lowest since March 1, but recovered to close down 2.5 percent.

It closed 0.47 percent up on Thursday before the announcement of the king's death.

Banks and financial markets will open as normal on Friday, industry association officials said.

CAPITAL OUTFLOWS

Nordea Markets' chief analyst Amy Yuan Zhuang, based in Singapore, said the economy was not as sentiment-driven as the baht, which could be vulnerable to capital outflows.

"We have only seen two or three days of net outflows from the local equity and bond markets and the sizes are not very big," Zhuang said before the announcement of the king's death.

But she added that outflows could increase.

Thai business leaders say privately they are confident the military government will ensure a smooth transition.

King Bhumibol was widely loved and most Thais have known no other monarch. Although his health had been poor for years, many will be shocked and deeply saddened by his death and will wear black and make offerings at Buddhist temples.

A royal cremation is likely to take months to prepare, according to palace tradition and two royal funerals over recent decades. Mourning rituals in temples are likely to be observed for many months, perhaps even years, if recent royal funeral rites are repeated.

Companies are likely to postpone some kinds of events, such as product launches, for the initial mourning period, the Eurasia Group said. (Reporting by Jongwoo Cheon; Editing by Raju Gopalakrishnan and Martin Howell)

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