* Iconic footage, deaths can shape investor sentiment
* Greece, Spain seen most in focus Thursday
* Turnout seen indicator of public resistance to cuts
By Peter Apps, Political Risk Correspondent
LONDON, Sept 28 (Reuters) - European activists are stepping up their challenge to austerity policies through demonstrations, strikes and social unrest -- but how far this moves markets depends as much on TV footage as on the numbers on the streets.
Most of Europe's unions and more radical hard-core protesters scaled back their protests over the summer. Now the number of strikes and demonstrations is rising again in the run-up to a Europe-wide day of action on Sept. 29.
Their aim, protesters say, is clear -- to push back politically against the broad consensus over deficit reduction and spending cuts that has followed the stimulus spending of the financial crisis.
Markets have been alarmed by the sovereign debt crisis particularly in fragile euro zone economies such as Greece and Ireland and will worry a strong show of force might sap government appetite for austerity.
Sentiment is key -- meaning much will come down to what traders, fund managers and analysts see in the media and hear from pundits. A new widely reported story of crisis could damage European assets across the board or spark alarm over a particular country.
"Images are important," said David Lea, Western Europe analyst at Control Risks. "If you look at the riots in Greece in May, what really got the market's attention were pictures of a burning television van -- a very small demonstration, but very strong pictures -- and then the burning of a bank and the deaths."
The death of three Greeks in a bank torched by protesters during a union demonstration ignited market alarm that ultimately priced Greece out of the sovereign debt market and drove a wider sell-off in the euro.
That helped force the agenda not just of the European Union bailout of Greece, but also of British politicians after the inconclusive May 7 election. Civil servants worried that the wider tale of European crisis would increase market pressure on Britain, driving up the cost of borrowing if a coalition government was not put in place at speed.
The question, therefore, is whether the latest demonstrations produce another iconic image or narrative. It might come from a relatively small event, but develop global resonance.
"The chances are reasonable you'll have some striking pictures for the front pages on Friday," said IHS Jane's European security analyst, Carina O'Reilly. "They are most likely to be from Greece -- there is still a significant threat from anarchists -- maybe followed by Spain. It only takes a handful of protesters, or even just one policeman with a baton overresponding."
NARROWER PROTESTS MORE EFFECTIVE?
Any violence or serious damage of property or individual incidents of police brutality may not be truly representative of the larger picture -- but could still dominate coverage. And that could affect prices.
Analysts will also be watching turnout, primarily to see whether it matches the large demonstrations earlier in the year. Any falloff would suggest that resistance to the cuts might be easing, while a greater turnout would raise the chances that governments might be forced to roll back.
But even the largest demonstrations have had limited effect. Some estimates suggest one in four people in Ireland took to the streets last year in anger at the crisis and cuts. But unions have pulled back from ordering widespread strike action -- in part over worries about a potential bond market reaction -- and the government has been largely able to push cuts through.
Narrower protests have had more success. Ireland's elderly lobby marched against specific proposed medical cuts last year and won, as did Bosnian war veterans after the International Monetary Fund demanded the government cut their benefits.
Narrower protests also tend to have less a market impact -- although the Bosnian protest effectively blocked an IMF deal, spooking investors.
The focus of markets and media could potentially serve to encourage some more radical protesters -- but the lesson of the Greek violence in May would appear to be that violent footage and particularly fatalities ultimately turn the public away.
Turnout at demonstrations in Athens fell sharply in the aftermath of the deaths, which prompted widespread soul-searching amongst the union and anarchist movement. That in itself could limit violence and direct action this time round, Control Risks' Lea says.
"Some people say now they don't want to march down the same street where the bank burnt," he said. "It's always been a major protest route, so that itself could make a difference."
(Editing by Ruth Pitchford)