(Adds riots after Kibaki announcement)

By Barry Moody and Daniel Wallis

NAIROBI, Jan 8 (Reuters) - Opposition supporters rioted in the western city of Kisumu on Tuesday after Kenyan President Mwai Kibaki named several members of a new cabinet, dashing hopes of an end to post-election bloodshed.

Witnesses said protesters built burning barricades and stoned cars in Kisumu, a stronghold of opposition leader Raila Odinga, after Kibaki named 17 new ministers.

Local reporter Baraka Karama told Reuters police shot dead one protester in Kisumu. Residents of Nairobi's Mathare and Kibera slums said hundreds of opposition supporters took to the streets, some brandishing machetes.

Almost 500 people have died in the violence since a disputed Dec. 27 election returned Kibaki to power.

The opposition, which says Kibaki holds power illegally after rigging the election, had earlier rejected bilateral negotiations with the government to end the violence. The cabinet announcement, which the opposition sees as an attempt to cement Kibaki's victory, reduced the scope for a national unity government, which he had offered earlier. It came as African Union chairman and Ghanaian President John Kufuor arrived for talks with both sides on the crisis.

Odinga's Orange Democratic Movement (ODM), said Kibaki's announcement had no legal basis and made a mockery of his agreement to enter serious negotiations with Kufuor mediating.

"This is the latest and most serious of many efforts by Mr Kibaki to undermine the Kufuor mission," a statement said.

Kibaki has invited Odinga to talks on Friday but the opposition leader said they were a "sideshow" and he would only attend negotiations mediated by Kufuor.

Kibaki did not invite Kufuor to Friday's talks and officials say he will remain in Nairobi for little more than 24 hours.

TELEVISED ADDRESS

Kibaki made a televised addressed to the nation to announce his cabinet, but did not mention the crisis.

He retained several figures hated by the opposition, including former hardline Interior Minister John Michuki, who moved to the roads ministry.

Despite huge international pressure, especially from Western powers, Kibaki and Odinga have still not met face-to-face since violence erupted when Kibaki was sworn in on Dec. 30.

Odinga says Kibaki stole the election and must step down and make way for a new vote after a transitional period.

Kibaki is reluctant to accept international mediation. His officials say the crisis is an internal matter.

Odinga accused Kibaki of trying to divert attention from Kufuor's mission by offering bilateral talks.

"Clearly, he is extremely worried about an independent, international review of the election outcome," Odinga said.

Finance Minister Amos Kimunya, reappointed to the new cabinet, told Reuters the turmoil could could cost east Africa's biggest economy around $1 billion. One of the worst crises since Kenya's independence from Britain in 1963 has also badly hit a swathe of central and east African countries dependent on Mombasa port on the Indian Ocean.

Britain and the United States pressed Kibaki and Odinga to negotiate a solution.

"They need to agree upon something that they can both live with that ends the political crisis and therefore ends the possibility of any further political violence," State Department spokesman Sean McCormack said.

Relatives were still retrieving bodies in the area around the western town of Eldoret after last week's violence.

Faith Wairimu broke down in sobs as she stumbled across her husband's dismembered body in a field late on Monday. He was hacked to death in the same attack near Eldoret in which 30 people died in a church set on fire by a mob.

Odinga had looked on course to win the election until Kibaki, 76, was handed a narrow victory. Both sides alleged widespread rigging and international observers say the poll fell short of democratic standards. (Additional reporting by Tim Cocks in Eldoret, Katie Nguyen, Daniel Wallis, George Obulutsa, Helen Nyamabura-Mwaura, Nicolo Gnecchi in Nairobi and Sue Pleming in Washington; Writing by Barry Moody; Editing by Keith Weir)

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