(Corrects site of Mumbai protest)
* Anti-corruption activist to fast until death
* Hundreds of thousands join protest
* Protests in Mumbai and Bangalore (Adds byline, quotes, Mumbai protest)
By Anurag Kotoky and Henry Foy
NEW DELHI, April 7 (Reuters) - India's government held talks with supporters of a leading social activist on a new anti-graft law on Thursday, hoping to persuade him to end a fast until death that has caught the imagination of thousands of citizens fed up with scandals.
Prime Minister Manmohan Singh's coalition faces a raft of graft scandals, including an alleged telecoms scam that may have cost the country up to $39 billion, that have spooked investors and could dent the government's chances in important state elections.
Inspired by Mahatma Gandhi's protests that helped end British colonial rule, the septuagenarian Anna Hazare launched his campaign in the centre of New Delhi's business district this week, demanding that the proposed Ombudsman Bill be strengthened to make it an effective tool against rampant corruption.
Hazare and a growing band of activists have launched a multi-city movement to force changes in the 40-year-old draft legislation to give the ombudsman police-like powers to prosecute politicians and bureaucrats, including judges and members of the prime minister's office.
Organisers hope a quarter of a million people will sign up for strengthening the provisions of the bill by Thursday night.
While there is no suggestion the activists want a change in government and have rejected offers of support from opposition parties, the fervour of the protests has drawn comparisons with the pro-democracy movements that have swept the Middle East.
The government says it has opened "a channel of communication" with Hazare on demands for activists to sit on a committee that will oversee the drafting of the legislation.
"Apart from slight weakness, I am fine. I've lost a little weight, but I can still carry on for at least seven more days. I'll never leave the path of truth," Hazare said on Thursday on the third day of his fast before scores of TV cameras.
Thousands of office workers, students and housewives congregated at the site of the fast, listening and applauding speeches from activists and people who had travelled from across India to lend their support to Hazare.
"Look at Libya, look at Tunisia, there is nothing people cannot do when they are united," said Tabrej Alam, a painter who had travelled over 1,000 km (620 miles) from the eastern state of Bihar.
Rallies in Mumbai, India's commercial centre, and Bangalore, the country's IT hub, drew thousands of supporters, including fellow hunger strikers, as Twitter, Facebook and phone text messages were used to spread the campaign nationwide.
"I will be 18 soon, and then I can decide who I want to be as my leader. We are spreading the news through social networking sites, students have a big part to play," said Anakita Bakshi, a 17-year-old schoolgirl from Delhi.
Hundreds of protesters wearing Gandhi-style caps shouted anti-graft slogans and sang patriotic songs as they gathered in south Mumbai before starting a march through the city.
"I have never associated myself with this cause before, but I think it is high time we did something," said Ashish Parikh, who has been fasting since Tuesday. "It's the tipping point before the revolution, corruption has seeped in at every level."
Hazare, who was awarded India's third-highest civilian honour for regenerating village communities in the 1990s, is a former army driver whose previous hunger strikes have forced government action on tackling graft at a state level.
In a sign of the protest's clout, pressure from Hazare prompted a key Congress party ally, farm minister Sharad Pawar, to step down from the group of ministers tasked with drawing up the anti-corruption bill late on Wednesday.
Singh promised the bill would be passed after his party's landslide 2004 election victory. Hazare and his supporters have drafted their own alternative version of the legislation, calling for the activist to chair the steering committee
The campaign comes days after police on Saturday charged former telecoms minister Andimuthu Raja with abuse of office as part of an investigation into the telecom licence scandal, potentially India's largest ever corruption case. [ID:nL4E7F201J] (Additional reporting by Manasi Phadke in MUMBAI; editing by Matthias Williams and Sugita Katyal)