(Adds Egypt, Somaliland)

By Aweys Yusuf

MOGADISHU, Nov 11 (Reuters) - Somali and Ethiopian troops shut down Mogadishu's main market in a search for Islamist insurgents on Sunday after fighting that has killed at least 60 people and driven tens of thousands from the Somali capital.

Though there were no reports of clashes, Ethiopian soldiers patrolled the north of the chaotic city while their allies from the interim Somali government kept watch on the south after the latest flare-up of the insurgency.

Ethiopian forces last week struck areas seen as favourable to the insurgents with tanks and artillery in reprisal for the killing of at least three of their soldiers, whose bodies were dragged through the streets.

Mogadishu's main market, Bakara, was closed for a second day on Sunday. The government has long viewed the market as an insurgent stronghold and frequently shut it down.

"We believe a lot of wounded rebels are hiding in Bakara and surrounding areas," said a senior policeman who declined to be named.

Streets in neighbourhoods hit during last week's fighting were deserted, a Reuters reporter said. Local human rights groups estimate a tenth of the city's 1 million people fled this week.

"More than 60 civilians have been killed in fighting that took place on Thursday and Friday, and more than 100,000 people fled. More than 200 people have been wounded," said Abdullahi Alas Jimale of the Ismail Jimale Human Rights Organisation.

Hundreds of thousands of Somalis have fled the capital this year during fighting between the insurgents and the interim Somali government.

That has strained scant resources in outlying villages, where the insecurity has made it hard for aid agencies to work.

Rights groups have criticised the Ethiopians for failing to distinguish between civilian and insurgent targets, and many Somalis resent the presence of an ancient Horn of Africa rival on their soil.

Egypt said on Sunday it wanted regional and international players to seek a quick alternative to reconciliation efforts that have thus far failed to end the bloodshed, a key part of which involved Ethiopia.

"Egypt calls on the parties... to hasten the departure of Ethiopian forces which have become a main cause of internal tension and part of the problem rather than the solution," Egypt's Foreign Ministry said in a statement.

The government of President Abdullahi Yusuf is the 14th attempt to impose central rule on the Horn of Africa nation since it became synonymous with anarchy, following the ouster of dictator Mohamed Siad Barre in 1991.

In the breakaway republic of Somaliland, which refuses to be part of Yusuf's government, publishers decried a proposed media law that would criminalise certain acts by journalists.

"This draft law if approved will be the end of democracy and the multiparty system in Somaliland, but the beginning of dictatorial rule by the current government," a communique signed by media houses said.

Somaliland is seeking sovereign recognition by the international community, saying its record of democratic elections should be rewarded. But human rights groups there have complained of increasing authoritarianism in the past year. (Additional reporting by Husein Ali Nur in Hargeisa and Aziz El-Kaissouni in Cairo)

(Writing by Bryson Hull, editing by Michael Roddy)

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