By Yasmine Saleh and Marwa Awad

CAIRO, Dec 4 (Reuters) - Egyptian police fired tear gas at protesters demonstrating against President Mohamed Mursi's drive to hold a snap referendum on a new constitution and some broke through police lines around his palace, live television footage showed.

Several thousand protesters had gathered nearby in what they dubbed "last warning" protests against Mursi, who has angered opponents with a Nov. 22 decree that expanded his powers. "The people want the downfall of the regime," chanted the protesters.

Mursi ignited a storm of unrest in his bid to prevent a judiciary still packed with appointees of ousted predecessor Hosni Mubarak from derailing a troubled political transition.

Riot police had earlier mustered around the palace as activists chanted "leave, leave" and held up Egyptian flags with "no to the constitution" written on them. Other protesters assembled in front of two mosques north of Cairo before marching towards the palace.

"Many of our national leaders and youth will join us in our marches today," said Hussein Abdel Ghany, a spokesman for the opposition coalition. "Our marches are against tyranny and the void constitutional decree and we won't retract our position until our demands are met."

Still, by early evening there was only a limited response to opposition calls for a mass campaign of civil disobedience in the Arab world's most populous country and cultural hub, where many people yearn for a return to stability.

A few hundred protesters gathered earlier near Mursi's house in a suburb east of Cairo, chanting slogans against his decree and against the Muslim Brotherhood, from which the president emerged to win a free election in June. Police closed the road to stop them from coming any closer, a security official said.

Liberals, leftists, Christians and others have accused Mursi of staging a dictatorial power grab to steamroller through a constitution drafted by an assembly packed with Islamists, with a referendum planned for Dec. 15.

Egypt's most widely read independent newspapers did not publish on Tuesday in protest at Mursi's "dictatorship". Banks planned to close three hours early, one bank official said.

Abdelrahman Mansour in Cairo's Tahrir Square, the cradle of the anti-Mubarak revolt, said: "The presidency believes the opposition is too weak and toothless. Today is the day we show them the opposition is a force to be reckoned with.

"Mursi must come out to talk and hear the people, the opposition," the activist went on. "The opposition says 'no' to the constitution and 'no' to autocracy."

After having pushed the Egyptian military command out of the political driving seat it held for decades, the Islamists sense their moment has come to shape the future of Egypt, a longtime U.S. ally whose 1979 peace treaty with Israel is a cornerstone of Washington's Middle East policy.

The Muslim Brotherhood and its allies, who staged a huge pro-Mursi demonstration on Saturday, are confident that enough members of the judiciary will be available to oversee the Dec. 15 referendum, despite calls by some judges for a boycott.

Cairo stocks closed 3.5 percent up on Tuesday as investors took heart at what they saw as prospects for a return to stability in a country whose divisions have only widened since a mass uprising toppled Mubarak on Feb. 11, 2011.

Mohamed Radwan, at Pharos Securities brokerage, said the Supreme Judicial Council's agreement to supervise the referendum had generated confidence that the vote would happen "despite all the noise and demonstrations that might take place until then".

"NO WAY PERFECT"

Prime Minister Hisham Kandil, a technocrat with Islamist sympathies, said in an interview with CNN: "We certainly hope that things will quiet down after the referendum is completed."

He said the constitution was "in no way a perfect text" that everyone had agreed to, but that a "majority consensus" favoured moving forward with the referendum in 11 days' time.

The Muslim Brotherhood, now tasting power via the ballot box for the first time in eight decades of struggle, wants to safeguard its gains and appears ready to override street protests by what it regards as an unrepresentative minority.

It is also determined to prevent the courts, which have already dissolved the Islamist-led elected lower house of parliament, from throwing more obstacles in the way of their blueprint for change.

Mohamed ElBaradei, coordinator of an opposition National Salvation Front, has said Mursi must rescind his decree, drop plans for the referendum and agree on a new, more representative constituent assembly to draft a democratic constitution.

In an opinion piece published in the Financial Times, he accused Mursi and the Brotherhood of believing that "with a few strokes of a pen, they can slide (Egypt) back into a coma".

ElBaradei, a Nobel Peace Prize laureate who once headed the U.N. nuclear watchdog, wrote: "If they continue to try, they risk an eruption into violence and chaos that will destroy the fabric of Egyptian society."

Despite charges that they are anti-Islamist and politically motivated, judges say they are following legal codes in their rulings. Experts say some political changes rushed through in the past two years have been on shaky legal ground.

A Western diplomat said the Islamists were counting on a popular desire for restored normality and economic stability.

"All the messages from the Muslim Brotherhood are that a vote for the constitution is one for stability and a vote against is one for uncertainty," he said, adding that the cost of the strategy was a "breakdown in consensus politics".