BANGKOK, Oct 8 (Reuters) - An uneasy calm settled over the Thai capital on Wednesday after the worst street violence in 16 years the day before, when two people died and nearly 400 were injured in clashes between police and anti-government protesters.

During the night, groups of youths from the People's Alliance for Democracy (PAD) taunted lines of riot officers near Bangkok's police headquarters. The officers responded with sporadic rounds of teargas and stun grenades.

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 PAD who have been occupying the prime minister's official compound since late August.

All was quiet at the compound early on Wednesday but one PAD leader threatened more demonstrations.

"We can't stand this government with blood on its hands. More people will hit the streets to oust this government," Sirichai Maingam told TV 3 television.

Newspapers were appalled by the violence. The Bangkok Post carried a picture supplement, blurring out bits of photos showing some demonstrators who had feet or parts of their legs blown off by exploding gas canisters.

Its front page headline read 'Brink of anarchy'. The Nation's headline was 'Bloodbath in Bangkok'. In an editorial it berated new Prime Minister Somchai Wongsawat for dropping "its reconciliatory posture" and appealed for dialogue.

The PAD is an extra-parliamentary coalition of businessmen, academics and activists. It calls Somchai a puppet for former premier Thaksin Shinawatra, his brother-in-law, who was deposed in a coup in 2006 and fled into exile in London in August to escape graft charges.

Army chief Anupong Paochinda denied rumours of another coup.

One man was killed by a car bomb on Tuesday and a female protester died during running battles with riot police near parliament, where Somchai gave his maiden policy address.

Somchai's main official engagement on Wednesday is a meeting with ambassadors from the Association of Southeast Asian Nations (ASEAN) to discuss preparations for December's annual summit.

The PAD campaign to topple the government, which dates back to May, and the recent violence have hurt investor confidence and distracted policymakers when they should be focused on slowing economic growth and the fallout from the global credit crisis. (Writing by Alan Raybould; Editing by Valerie Lee)

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