GENEVA, May 4 (Reuters) - The United Nations refugee agency said on Friday it needs more funds to help the hundreds of thousands of people who have fled violence in the Somali capital, Mogadishu.

Many families who have arrived in the southern town of Baidoa live in flimsy shelters made of fabric wrapped around sticks, while others had nothing to protect them from heavy rains, it said.

The U.N. High Commissioner for Refugees (UNHCR) had set a 2007 budget of $5.7 million for Somalia before 365,000 people fled fighting in the capital between government forces and insurgents that killed at least 1,300 people.

"This is clearly not enough. We will be appealing for more funds shortly," spokeswoman Jennifer Pagonis told reporters.

The UNHCR also said it was negotiating with the transitional government over shelter for people who want to return to Mogadishu, but face possible eviction from their settlements inside former government buildings.

UNHCR was seeking to ensure that those returning to the Somali capital are "relocated on land within Mogadishu which is economically viable and with enough utilities and infrastructure," Pagonis said.

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