(Adds intelligence chief killed, details)

By Aweys Yusuf

MOGADISHU, Feb 21 (Reuters) - Five people were killed in violence in Mogadishu on Thursday, at least three caught in crossfire between Somali government troops, their Ethiopian allies and Islamist-led rebels, residents said.

Witnesses said clashes broke out in the northern Suqa Holaha neighbourhood of the capital after government soldiers began patrolling the area, which is seen as an insurgent stronghold.

Residents cowered behind closed doors as both sides traded barrages of artillery rounds and heavy machinegun fire.

"The mortars were coming from every direction but two landed in our neighbourhood, killing three people and wounding at least six others," local man Fawsiyo Abshir told Reuters by telephone.

The insurgents have stepped up attacks in recent weeks against the government and its Ethiopian backers, who ousted a hardline Islamist group from Mogadishu just over a year ago.

Local rights workers say battles in the city killed some 6,500 people last year -- and at least 292 in the last month.

An estimated 2 million residents have been forced from their homes in the coastal capital since January 2007, they say.

There was also violence in Mogadishu's sprawling Bakara Market, infamous as the site of the world's biggest open-air arms bazaar and scene of much of the recent fighting.

"Insurgents hurled at least four grenades at police who were searching shops," said one market trader who asked not to be named. "The police opened fire and all businesses closed."

The trader said the body of a young girl was seen in the area after the chaos subsided, but that it was not clear whether she had been killed by the grenade blasts or police bullets.

A police spokesman, Abdulahi Ibrahim Omar, denied that any officers had been attacked in Bakara on Thursday. But he said they had carried out a successful operation there, seizing weapons and explosives that were being stockpiled by the rebels.

In a third incident, witnesses said gunmen shot dead the intelligence chief of Afgoye District, on the southwestern outskirts of Mogadishu where thousands of displaced families have set up makeshift camps after fleeing the city.

Residents said three men with pistols stopped Mustafa Abdirahman Addow in the area's main marketplace, firing in the air to scatter bystanders before shooting him in the head.

"I could see him being shot," witness Hassan Mayow told Reuters. "I was just a few metres away. The gunmen first fired twice into the air and then shot him in the head."

Afgoye's deputy police chief, Sharif Aden Mohamud, said officers were on the scene within half an hour.

"An investigation is under way," he said by telephone. (Writing by Daniel Wallis; Editing by Elizabeth Piper)

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