(Updates with humanitarian crisis)

By Aweys Yusuf

MOGADISHU, Nov 9 (Reuters) - Corpses lay on Mogadishu streets on Friday as Ethiopian forces backed by tanks and artillery fought Islamist-led insurgents in a new round of fighting that has killed more than 40 people in two days.

Residents said the death toll included eight civilians who died on Friday when an Ethiopian mortar bomb blew up in the sprawling Bakara Market, littering the area with body parts.

Twelve more bodies, including two women, lay in an insurgent stronghold in the north of the city -- a district where rebels dragged dead Ethiopian soldiers along the roads on Thursday.

"Some of the dead civilians were identified by relatives," Mohammed Abdullahi, a resident of the Sqa Holaha neighbourhood, told Reuters by telephone. "Some are still lying here."

In a move likely to dismay the interim government as it and its Ethiopian allies battle the rebels, U.N. Secretary-General Ban Ki-moon said on Thursday that sending U.N. peacekeepers to Somalia was neither realistic nor viable.

Insecurity had prevented the world body from even sending a technical assessment team, he said.

The Somali administration has long called for U.N. troops to help it stamp its authority on the Horn of Africa country. It is the 14th attempt to forge central rule in Somalia, which has been in chaos since 1991 when warlords ousted a dictator.

With Ethiopian support, the government chased hardline Islamists out of the capital at the start of this year, but has since faced an Iraq-style rebellion.

In the latest fighting, Ethiopian infantry and tanks pounded insurgent positions in the city, while the rebels responded with automatic gunfire and rocket-propelled grenades.

HUMANITARIAN CRISIS

Shabelle, an independent local broadcaster, quoted residents accusing the Ethiopians of indiscriminately shelling some of the city's most densely populated areas. It said at least 43 bodies were found on Friday in areas that were hit hard on Thursday.

The United Nations said on Friday 114,000 more Somalis had been displaced by fighting in the last week, bringing to 850,000 the number of internal refugees across the nation.

"Somalia is facing one of the worst humanitarian crises in years and coping mechanisms of the population are stretched to the limit," the U.N. Office for the Coordination of Humanitarian Affairs (OCHA) said in a statement released in Nairobi.

It condemned the dragging of corpses through the streets of Mogadishu this week: "These gross violations of humanitarian law as well as barbaric and inhuman acts have triggered new panic and movements of population."

And U.N. OCHA also warned that 10,000 severely malnourished children in Lower Shabelle were "at risk of death" without "desperately needed massive intervention."

In a bid to stem the violence, the African Union agreed this year to deploy 8,000 troops to replace the Ethiopians in Somalia. But so far only 1,600 Ugandan soldiers have arrived.

Ban's conclusion that it was unrealistic to send U.N. peacekeepers angered Mogadishu's dominant Hawiye clan, many of whose members resent the presence of their old enemy Ethiopia.

"We accuse human rights organisations and the United Nations of keeping silent about the massacres the Ethiopians are committing," Hawiye elder Mohammed Hassan Haad told Reuters.

"We are unhappy with their decision not to send troops to Somalia, just when our country needs them most." (Additional reporting by Claudia Parsons in New York and Andrew Cawthorne in Nairobi; Writing by Daniel Wallis; Editing by Charles Dick)

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