Sri Lanka govt, opposition trade blame over union protester's death

* Marxist-led union protests continue

* Govt says withdraws pension proposal

By Shihar Aneez and Ranga Sirilal

COLOMBO, June 2 (Reuters) - Sri Lanka's Marxist opposition and the government traded blame on Thursday for the death of a striking worker by a police bullet, amid new strikes that are the first big labour challenge to President Mahinda Rajapaksa since he took power in 2005.

Workers in unions linked to the Marxist Janatha Vimukthi Peramuna (JVP) party protested peacefully in the capital, Colombo, and about 33 km north (20 miles) at Katunayake, site of clashes between workers and police that wounded at least 200 on Monday. [ID:nL3E7GU196][ID:nL3E7GV0IK]

In Colombo, police -- which fall under the Defence Ministry run by Rajapsaksa's younger brother, Defence Secretary Gotabaya Rajapaksa -- stopped several hundred government supporters from attacking JVP protesters, a Reuters reporter saw.

The earlier violent protest on Monday at the Katunayake free trade area started over worker opposition to a government pension proposal, but was quickly hijacked by political elements and union anger rose after the heavy-handed police response. [ID:nL3E7H12SZ]

"The government should take the full responsibility for the death and the attack," JVP General Secretary Tilvin Silva told a news conference. "Whatever the government says to the world, the suppression against the workers is continuing."

On Thursday, state-run Sri Lanka Broadcasting Corporation accused the JVP of causing the worker's death and said the Marxists were trying to instigate violence and start another insurrection, as the party did in 1971 and 1988-89.

Nonetheless, worker outrage prompted the government to make a public show that it was rowing back on the proposal.

On Wednesday, the police chief -- due to retire on June 18 -- stepped down early in what the government painted as a step toward public accountability, while saying it would withdraw the pension proposal from parliament temporarily.

"The government has decided to withdraw the bill, but the right to bring it back in a different context is there," government spokesman Keheliya Rambukwella told reporters on Thursday.

Sri Lanka's unions have traditionally wielded big influence and given nearly all post-independence leaders headaches, but Rajapaksa all but sidelined them, mainly because a 25-year civil war occupied national attention until May 2009.

Rajapaksa's popularity for leading the nation to victory over the Tamil Tiger separatists has also given his government a largely free hand to do as it wishes, and the opposition has barely been able to mount an effective challenge to him since.

The government is under pressure to trim its big public sector wage bill under the terms of a $2.6 billion International Monetary Fund loan, which has resulted in Rajapaksa delaying on pledges to deliver promised wage and benefit increases.

The proposed private pension scheme would make workers wait longer to access their savings and add yet another cost to employers, who already pay big benefits in a nation with one of the highest numbers of annual paid days off in the world. (Editing by Bryson Hull)