Fierce clashes between protesters and government loyalists left at least 40 wounded in Yemen on Thursday, the seventh day of demonstrations demanding an end to President Ali Abdullah Saleh's 32-year rule.

Fighting broke out in the capital Sanaa after around 800 government loyalists armed with daggers and clubs confronted about 1,500 protesters, who responded by hurling rocks.

At least 40 people were wounded in the violence, a Reuters reporter estimated, based on numbers provided by both sides.

Saleh, a U.S. ally against a resurgent wing of al Qaeda in Yemen that has launched attacks on foreign and regional targets, is struggling to quell month-old protests now erupting almost daily.

We won't stop protesting until this regime falls. We've been patient long enough, said student Salah Abdullah.

The youths on the streets say they are angered by corruption and soaring unemployment. A third of the population in the Arabian Peninsula state face chronic hunger and 40 percent live on less than 1.24 pounds a day.

Yemen is struggling to cement a truce with northern Shi'ite rebels and stamp out an increasingly violent southern separatist movement.

After hours of fighting in Sanaa's Sitteen Street, pavements were stained with blood and people hid inside shuttered stores.

A Reuters reporter said a few dozen police were present at the clashes, but only fired shots in the air and did not try to break up the fighting. Loyalists beat several photographers and took their cameras.

Trying to calm the streets, Saleh has made concessions such as a promise to step down when his term ends in 2013 and a vow not to let his son inherit power.

Opposition parties, which had drawn tens of thousands in rallies, have now agreed to talk with him.

But protests have continued, no longer led by the organised opposition. Students and other activists have organised smaller protests using mobile text messages and Facebook.

The protests are taking on a younger look and the inability of the opposition parties to control them are bad news for President Saleh, said Charles Dunbar of Boston University.

The U.S. and the international community would have real cause for worry in a post-Saleh world in Yemen where the state in general and the army in particular are not in a position to maintain control should he leave.

Analysts say any uprising in Yemen, neighbour to top oil exporter Saudi Arabia, is unlikely to lead to sudden government collapse. But unrest could unfold slowly and lead to more bloodshed in a country where one in two people own a gun.

LEADING CLERIC SUPPORTS SALEH

The latest demonstrations have been countered by Saleh loyalists ready to use violence. In the south, security forces have also used force more willingly.

Two protesters were killed in the southern port city of Aden on Wednesday, when police fired shots to disperse a demonstration.

Saleh has been touring provinces trying to rally support and sent his vice president to Aden on Thursday to head a committee to investigate the violence.

Police fired in the air but failed to break up hundreds of people at a sit-in around Aden's city hall on Thursday to protest against police treatment of demonstrators.

Muslim preachers loyal to Saleh have stepped into the political fray in a country where religious and tribal allegiances are often stronger than political ones.

Abdel Majid al-Zindani, a religious leader in Sanaa, said Muslim preachers were calling for a unity government.

Zindani said his proposal did not include a change in president and said Yemenis should wait for 2013 elections.

In Sanaa, Saleh loyalists have occupied the main Tahrir Square for the past week, sleeping in tents, to deny anti-government protesters access to the symbolic public space that bears the same name as the epicentre of Egypt's revolution.

South of Sanaa, anti-government protesters in Taiz took over the main square days ago, with their numbers swelling to a few thousand in the evening and thinning out at dawn.