By Chisa Fujioka

TOKYO, Dec 20 (Reuters) - Japanese hepatitis patients on Thursday rejected a government compensation proposal in a high-profile scandal over tainted blood, a move that could further erode Prime Minister Yasuo Fukuda's falling support rate.

Media have presented the emotive scandal, in which patients were infected with tainted blood products years ago, as a test for Fukuda, who already faces voter anger over mishandled pension records and a bribery scandal involving a former top defence official.

At least 10,000 people are estimated to have contracted hepatitis C from tainted products such as coagulant fibrinogen, used to stop haemorrhaging during childbirth or surgery and sold in Japan even after being withdrawn in the United States in 1977.

A group of patients had sued the government and drug makers seeking compensation but rejected a proposal by a regional court last week, saying it would only provide aid to a limited number of patients.

They called on Fukuda to go beyond the court proposal and provide compensation to all sufferers of hepatitis from tainted blood products. The patients had also repeatedly asked for a meeting with him but had been turned down.

"As long as the government continues to draw a line for lives, we can not go on with settlement talks," Tomoko Kuwata, one of the plaintiffs, told reporters after the government's offer to follow the court proposal.

"Why were our fair demands not accepted? It makes me sad," she said, with tears in her eyes.

Health Minister Yoichi Masuzoe, while bowing in apology for the scandal before flashing cameras, said the government could not compensate patients beyond the court proposal.

"We can not have an settlement that goes against the settlement proposal by the Osaka High Court," Masuzoe told a news conference.

The government was expected to pay around 17 billion yen ($150 million) to 1,000 patients under the proposal, Kyodo news agency said.

PLUNGING SUPPORT

Media have said Fukuda was under pressure to appeal to voters but at the same time was wary of financial commitments that could amount to nearly 200 billion yen.

The breakdown in talks with hepatitis patients comes less than a week after public opinion polls found support ratings for Fukuda's cabinet had plunged as low as 33 percent.

The decline is likely to embolden the main opposition party, which along with other small parties holds a majority in the upper house, to put pressure on Fukuda to call a snap election.

Patients and critics say the hepatitis scandal is a disturbing rerun of coverups that led to nearly 2,000 haemophiliacs being exposed to the human immunodeficiency virus (HIV) in the early 1980s.

In October, the government was embarrassed when health ministry officials admitted to processing data that would have helped identify or warn hundreds of hepatitis patients before their illnesses worsened.

Hepatitis C can lead to chronic liver infection and cirrhosis. About 1 percent to 5 percent of people with the disease eventually die from long-term infection, according to the U.S. Centers for Disease Control and Prevention.

Fukuda's style in handling the hepatitis scandal is in stark contrast to that of former Prime Minister Junichiro Koizumi, who in 2001 stunned the public with a decision not to appeal against a landmark court ruling ordering the government to compensate leprosy patients incarcerated for decades. The unexpected move was a key factor that elevated the popularity of Koizumi, who was still fresh in his job. ($1=113.26 Yen) (Editing by George Nishiyama)

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