SANAA (Reuters) - Three people died and hundreds were injured on Saturday in some of the fiercest clashes between police and anti-government protesters since popular unrest started to batter faction-riven Yemen in January.

Two people were killed in the capital Sanaa and a boy of 12 died in the southern city of Mukalla, with fighting reported in at least two other cities as protests against President Ali Abdullah Saleh’s 32-year rule turning ever more violent.

The United States said it was dismayed by the growing fatalities and called for calm, warning that Yemen could suffer the same fate as Libya unless there was dialogue.

Hundreds of police fired volleys of tear gas and used water cannon in a pre-dawn operation apparently aimed at preventing a makeshift protester camp spreading any further in Sanaa.

The crowds responded with a hail of rocks and live ammunition was fired. Injured demonstrators were carried to a nearby mosque which was turned into a makeshift medical center.

A doctor said a young boy was fatally shot. Another source said the dead person was a man from eastern Yemen. Later, a man was shot dead as he watched clashes from his office window.

The Interior Ministry accused protesters of opening fire and said 161 police were injured.

Dozens of demonstrators were overcome by the teargas, with friends using torn pieces of cardboard to fan them as they lay stretched out on the ground, many of them barely conscious.

“The gas used by the police is strange. It causes cramps and a collapse of the nervous system,” said Bashir al-Kahli, a doctor helping the injured.

The Interior Ministry denied using any sort of nerve gas.

By late afternoon occasional firing could be heard in the capital, but witnesses said a square by Sanaa university, which has become a focal point for protests, was calm.

U.S. CALLS FOR PEACEFUL TRANSITION

A wave of protests, inspired by popular revolts in Egypt and Tunisia, has weakened Saleh’s grip on Yemen, but he has steadfastly refused calls for his resignation and the police response to the crisis has become increasingly tough.

Opposition to his rule also shows no sign of easing.

Clashes were reported in Mukalla, the port city of Aden and Taiz, 200 km (125 miles) south of Sanaa, where youths stormed the main government building, residents said.

The U.S. ambassador to Yemen called for talks between the two sides, telling the opposition that getting rid of Saleh would not resolve the problems afflicting the Arabian Peninsula’s poorest nation.

“The only way to resolve these issues and to put Yemen on a path toward a positive future is through dialogue,” envoy Gerald Feierstein told a small group of reporters.

“We want to see a peaceful transition. We want to see Yemen moving forward to a new reality,” he added.

Washington has regarded Saleh as an important ally in its fight against al Qaeda, which has an active cell in Yemen.

Asked if the situation could degenerate as it had in Libya, Feierstein said: “Yes ... I think you have a heavily armed population, you have a history of violent conflict in the country and you have a number of people who are already talking about the possibility of using violence to achieve their goals.”

As Yemen’s water and oil resources dry up, it has become increasingly difficult for Saleh, 68, to fuel the patronage system that kept his tribal and political supporters loyal.

Protesters complain of rampant corruption and soaring unemployment and say change is needed to resolve their woes.