Sat Dec 31, 2011
* Almost 100,000 displaced by army, militant fighting
* Militants block march, talks underway
* Saudi oil grant will cover needs for two months-min (Recasts with militants stopping march)
ADEN, Yemen, Dec 31 (Reuters) - Islamist militants fired into the air on Saturday to halt a peace march by thousands of Yemenis who were demanding an end to fighting that has forced them to flee their homes in the south, witnesses said.
Marchers told Reuters they were stopped on a 50 km (31 mile) walk from the port city of Aden to Zinjibar, capital of southern Abyan province where the army has been battling fighters suspected of having links with al Qaeda.
The southern fighting is one of many challenges facing the impoverished state, which has also been rocked by nearly a year of protests against the 33-year rule of outgoing President Ali Abdullah Saleh.
The United States, and top oil producer Saudi Arabia, are both concerned about the growing chaos in the country, which is close to oil shipping routes.
Analysts fear the unrest could be exploited by al Qaeda's arm in Yemen, seen as the group's most powerful branch.
The marchers said they were calling on both sides to lay down their arms in the south and demanding the government open the Aden-Zinjibar coastal highway, a key trade route which has remained closed during the conflict.
The protesters, who said 20,000 people took part in the march including women and children, told Reuters they forced their way through a military check-point on the road before meeting the militants.
"About 20 armed men shot in the air to stop us. They told us they had nothing against our returning home as long as we did not get involved in the conflict," Mahmoud al-Sayyed, one the marchers, told Reuters.
Some of the marchers turned back, while others were holding talks with the militants to convince them to allow the march to continue, Sayyed said. The militants said they wanted to keep the marchers away from the fighting for their own safety, said marchers.
"Our march is a message to the regime, the army and al Qaeda that we are the sons of Abyan ... and we are determined to return to our homes," said one marcher earlier, declining to give his name.
Saudi Arabia has backed a Gulf Arab peace plan to resolve the anti-Saleh uprising, under which the president handed power to his deputy. A presidential election is scheduled for February.
But the fighting against the Islamist militants in the south has continued, forcing about 97,000 people to flee. More than 300,000 others have been displaced by a conflict in the north, according to U.N. estimates.
Separately, Yemen's oil minister said a grant of diesel from neighbouring Saudi Arabia would be enough to cover the country's needs for two months, easing some fears about the strife-hit economy.
Industry sources said on Thursday Saudi Arabia's state oil company Aramco was seeking to buy fuel in order to donate about 500,000 tonnes of products to Yemen in January.
It would be the second time in six months Saudi Arabia has thrown a fuel lifeline to its impoverished neighbour.
Sharaf also told Reuters production at the Masila oilfield - now under Yemeni administration after Canada's Nexen had one of its production contracts expire without renewal - was 70,000 barrels per day.