(Adds charges)

By Tim Cocks

KAMPALA, April 17 (Reuters) - Ugandan police used water cannon, teargas, batons and live rounds on Tuesday to disperse hundreds of opposition supporters protesting at the arrest of two politicians accused of inciting anti-Indian violence.

The opposition members of parliament were charged with participating in rioting last week in which three people were killed, including a man of Indian origin stoned to death.

As they waited to be brought to court, scores of Ugandan police and military dispersed a few hundred of their supporters.

"They chased me away then started beating me. I have pain all over," said opposition supporter Richard Musoke, 36, dragging himself off the ground after five military police thumped him repeatedly with batons.

One police officer drew a pistol and pointed it at a man's head, a Reuters witness saw.

"The people who caused mayhem last Thursday will not be allowed to assemble here," Kampala police commander Edward Ochom said at the scene.

Police fired warning shots in the air and protesters smashed windows to flee into nearby buildings.

Pro-government vigilantes in plain clothes wielding sticks were then allowed by police to chase suspected protesters and beat them as they fled to downtown Kampala.

Police arrested MPs Beatrice Atim and Hussein Kyanjo on Monday. Twenty six others were charged alongside them.

The state prosecutor charged three other people with the Indian man's murder and another man with shooting two Ugandans dead at Thursday's demonstration.

"(The defendants) are charged with participating in a riot," magistrate Margaret Tibulya told the court. "Having unlawfully assembled ... you conducted yourselves in a manner that led to a breach of the peace and terror of the public."

Last week's riot began during a protest organised by the two MPs against a government proposal to give an Indian-owned company almost a third of a rainforest reserve to grow sugar.

Mobs looted shops, dragged people off motorcycles and police rescued over 100 people of Indian origin in scenes recalling the late dictator Idi Amin's 1972 expulsion of all Asians.

Several thousand people, mainly of Indian or Pakistani descent, returned to Uganda after President Yoweri Museveni took power in 1986. But many resent their business clout.

The rainforest controversy began last year when Museveni ordered a study into whether to raze at least 7,000 hectares (17,000 acres) of Mabira Forest, a nature reserve since 1932, to expand the sugar estate of the Indian-owned Mehta Group.

Critics say destroying Mabira would devastate ecosystems. Museveni says conservation is a luxury for rich nations.

Uganda's main opposition leader, Kizza Besigye, accused Museveni of stoking tensions by favouring Indian businesses.

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