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By Abdi Sheikh and Abdi Mohamed

MOGADISHU, May 5 (Reuters) - A young man was killed when thousands of Somalis protested in Mogadishu on Monday over food traders' refusal to take old currency notes blamed for stoking spiralling inflation, witnesses said.

A shopkeeper shot the man dead after dozens of demonstrators wielding clubs and stones broke into his store. Locals said police wounded a teenage boy while trying to disperse hundreds of angry residents.

"The shopkeeper fired a pistol at the crowd and it hit the young man's head," one witness in the Madina district in the southeast of the capital said, refusing to give his name.

Despite still being a legal currency, many shopkeepers have been refusing to accept the worn out old notes, saying wholesale traders were also refusing to take them.

The Somali shilling is valued at roughly 34,000 to the dollar -- more than double what it is was a year ago -- and many blame the fall in value on counterfeiters.

With an interim government focused on containing islamist insurgency, there is no one to control rampant counterfeiting of currency which is often exchanged for real dollars that are then taken out of the country.

The problem has been compounded by sharply rising world food prices, leaving many in the lawless Horn of Africa nation of 10 million short of money to buy food, triggering several protests or riots in the past six months.

On Monday, thousands were on the streets of the bombed-out capital, clutching tattered old notes while shouting "Down with traders" and "We want to buy food".

All shops remained closed and the streets empty as protestors stoned the few vehicles moving around.

"NOTHING TO EAT"

"The whole city is up in smoke," protestor Hussein Abdikadir told Reuters while rolling a tyre he said he intended to burn in the Buulahubey neighbourhood of southern Mogadishu.

"Traders have refused to take old notes. Food prices are high and we have nothing to eat," he said. "We will protest until the traders agree to take the notes and sell us food."

Traders in the sprawling Bakara Market, which also houses a notorious open-air arms bazaar, blame the interim government and unscrupulous businessmen for the runaway inflation.

"Businessmen blame the government, which does not control the security and circulation of money. The problem is from Bakara market but I don't know who is behind it and how," moneychanger Abdirahman Omar told Reuters.

Somalia has been without any kind of real government since the 1991 ouster of dictator Mohamed Siad Barre by a coalition of warlords. Since then, the country's agricultural bounty has withered to the point where Somalis rely on imports.

"The refusal of the old bank notes is an economic war which will automatically lead to violence and starvation," Osman Buno, another shopkeeper, told Reuters.

The exchange rate is so bad Somalis must carry huge stacks of 1,000 Somali shilling notes just to buy daily necessities. (Writing by Guled Mohamed and Bryson Hull; Editing by Daniel Wallis)

For FACTBOX on food price protests, click on [nL05374891], for TAKE A LOOK on food price inflation [nLO3499222] (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/)

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