BANGKOK, April 16 (Reuters) - Thai stocks fell around 1.0 percent on Thursday in reaction to political violence during a three-day holiday, but the drop was smaller than some had feared earlier in the week thanks to the peaceful end to the protests.

At 0327 GMT, the index was down 0.93 percent at 449.67.

Shares in tourism-related sectors were among the hardest hit, with Thai Airways International down 2.6 percent at 9.50 baht and Airports of Thailand down 2.3 percent at 13 baht.

In Bangkok two people died in skirmishes between "red shirt" protesters and local residents, the authorities said, while at least 123 were injured in clashes between troops and protesters, mainly on Monday when demonstrators blocked a big road junction.

Stock market volume was thin after the government extended the Thai New Year holiday to cover the whole week to help it restore order. Many Thais book the whole week off work anyway at this time of the year.

The MSCI index of Asia-Pacific stocks traded outside Japan rose 2.88 percent over the three days when the Thai market was closed for the Songkran Festival.

"The market fall should be limited now and we expect a small loss of just 1 to 3 percent compared with our previous forecast of a loss of as big as 5 percent," said Viwat Techapoonphol, a strategist at Tisco Securities, before the opening.

"We think the political tension over the long holiday has eased, but the rating cut by S&P may be alarming for some investors," he added.

Standard & Poor's lowered Thailand's domestic currency rating to A-minus from A on Tuesday and kept a negative outlook on sovereign ratings because of the country's political crisis.

The baht opened a little stronger in onshore deals and was trading at 35.35/41 baht per dollar at 0314 GMT, barely changed from 35.35 last Friday.

Government bonds benefited from investors' nervousness over holding stocks in such an uncertain political climate.

Yields on the secondary market were largely lower, with short-end yields at an auction on Thursday 2-3 basis points (bps) lower than secondary market yields on Friday.

Benchmark yields on 5-year bonds in the secondary market were down 4-5 basis points (bps) and 10-year bond yields were down 4 basis points (bps).

Some analysts said foreigners might be more nervous about the stock market than locals.

"Any falls will be supported by local investors, who are in a better mood since the riots ended during the holiday," said Sukit Udomsirikul, a senior analyst with Siam City Securities.

"Political risk hasn't come to an end yet. But the level of risk isn't enough to pull the market down sharply," he added.