UPDATE 11-Thai clashes kill 2 in Bangkok, hundreds injured

(Recasts, adds PAD leader)

By Pracha Hariraksapitak and Ed Cropley

BANGKOK, Oct 7 (Reuters) - Thai riot police fired tear gas and stun grenades after a day of street battles with anti-government protesters on Tuesday in which two people were killed and nearly 400 were injured.

The military put troops on the streets to back up the police, but the unarmed soldiers showed no desire to disperse the thousands of demonstrators from the People's Alliance for Democracy (PAD).

One man was killed by a car bomb and a female protester died as the PAD intensified its four-month campaign to unseat a government they say is the illegitimate puppet of ousted premier Thaksin Shinawatra.

Army chief Anupong Paochinda denied rumours of a coup, two years after the military removed Thaksin in a bloodless putsch.

"People should not panic. Soldiers will not launch a coup since it will not be good for the country," he told reporters.

The clashes began shortly after dawn when police used tear gas to force a path through 5,000 PAD members blockading parliament to disrupt the opening session.

By nightfall, 381 people had been injured, 48 seriously, after the worst street violence since the army and pro-democracy activists fought in 1992.

Two policemen were shot and another stabbed during the unrest, which occurred mainly in Bangkok's administrative zone and did not spill into tourist areas.

Deputy Prime Minister Chavalit Yongchaiyudh, the government's chief negotiator with the PAD, resigned, saying police failed to exercise the restraint he had requested.

"Since this action did not achieve what I planned, I want to show my responsibility for this operation," he said.

After the army announcement, the PAD, an extra-parliamentary group of businessmen, academics and activists, began pulling back to the Government House compound it has occupied since August.

But youths continued to taunt police, who randomly fired stun grenades at the jeering crowd.

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