The translation makes more sense in the past tense: "I said thank you," or as "I say 'thank you'" (which is included as a correct answer) but not as "I am saying 'thank you'." One might say "I am trying to say 'thank you'," but that would be "Je tente dire merci," or "J'essaie dire merci." (Could someone explain which would be better French and why?)
You can also see here for more details: http://french.about.com/od/verb_conjugations/a/dire.htm
My dictionaries say "merci" is a masculine noun meaning "thank you", a feminine noun with a different meaning, and an "exclamation" or "interjection" of "thank you". Since it apparently doesn't need an article, nor is it « quoted », does this mean it is being used as an interjection? Is it the direct object of "dire"? Are there any rules about this? And how would one say in French a quotation, as in: I say "<phrase>" ?
"Merci ! Un grand merci ! Mille mercis ! Merci bien ! Merci encore ! (etc)" use the noun in short exclamations.
You can also build full sentences with this noun: "je vous adresse un merci tout particulier..." - yet, in such more formal sentences, you can also use "un remerciement, des remerciements".
"Je dis toujours bonjour, s'il vous plaît et merci": these words all work as nouns, and direct objects of "dire".
Quotations work as in English (except for the "guillemets"):
Alors il a dit : « Merci pour tout, mes amis ! ».
In formal writing, the quotations work differently:
Alors l'homme dit :
— Merci pour tout, mes amis !