* Deadlock over fuel subsidy removal
* Strikes hurt security as Boko Haram menace grows
* Africa's second biggest economy paralysed
By Chijioke Ohuocha and Tim Cocks
LAGOS, Jan 11 (Reuters) - A showdown between Nigeria's government and unions over a more than doubling of motor fuel prices paralysed the country for a third day on Wednesday, with neither side showing any sign of backing down.
Streets of the normally heaving commercial capital Lagos were largely deserted, apart from youths at roadblocks trying to prevent cars moving, groups of protesters and a few hand-to-mouth traders who must work to survive selling fruit juice or mobile phone credit.
Workers vowed to keep up the indefinite strike unless the government restored a motor fuel subsidy it scrapped on Jan. 1, but authorities said they would withhold pay from civil servants who join it.
Banks, restaurants and shops were shuttered up, evidence that the strike is badly damaging the economy, in which most people live on less than $2 per day.
"I have stocks lasting a week but I'm running out of supplies," said David Negedu, 32, a financial analyst in the middle class Lekki neighbourhood, who supports the strike. "You want to get back to work, but yet again we want this action ... until the government comes up with a plan that makes sense."
The government of President Goodluck Jonathan now has two major security problems - opposition to the fuel price rise which has occasionally turned violent and sectarian strife started by the Islamist militant group Boko Haram.
Economists say the fuel subsidy would soon have bankrupted the country. But its removal more than doubled the petrol price to 150 naira ($0.93) a litre, depriving Nigerians of what many regarded as their only welfare benefit.
Jonathan has stood firm on removing the subsidy in a nation which is Africa's biggest crude producer but which has to import many of its oil products due to a shortage of refining capacity.
Scores of passengers were stranded by cancelled flights at Lagos international airport, many of them sleeping on the floor as they waited in vain for airlines to resume services.
"It's the population that is suffering the most from this strike," said an African diplomat in Lagos. "I think the government and labour will have to come to a compromise where both will shift their ground just to end it."
There was no sign of that on Wednesday. "The Jonathan presidency must wake up to the reality that Nigerians ... have spoken out across the country against the fuel price hike and it will do well to listen," the unions said in a statement.
The strike has not affected oil output yet, industry officials say, though the offices of international companies such as Shell and Exxon Mobil are shut.
Tens of thousands demonstrated in cities across the country of 160 million on Tuesday in protests that are gathering pace, especially in Lagos, Nigeria's largest city, and the capital Abuja. Similar numbers are expected on Wednesday, and crowds began gathering in Abuja's Berger junction on Wednesday morning.
Some protests have turned violent. A mob killed five people in an attack on a mosque in southern Nigeria on Tuesday, taking advantage of the civil disorder to settle sectarian scores and highlighting the nation's worsening fragility.
Police shot dead two people and wounded at least two dozen during protests on Monday.
Suspected Boko Haram members on motorbikes opened fire on a bar in the northeastern town of Potiskum on Tuesday, killing eight people, the local police commissioner said. He earlier said four were policemen but confirmed on Wednesday that one was a policeman and the rest were civilians, including one woman.
Jonathan has been criticised for failing to quell Boko Haram, whose insurgency is rooted in the largely Muslim north. However, it is increasingly targeting Christians from the south, most recently in attacks on churches that have killed dozens and provoked reprisals against Muslims.
Jonathan has shown no sign of yielding to protests similar to those that derailed past attempts to scrap the subsidy.
"The option of dialogue is still open. I think each side is exploring the need to talk," Labour Minister Chukwuemeka Wogu said on Tuesday. However, neither side wants to budge.
Raising the stakes, the attorney general said late on Tuesday that striking public sector workers would not be paid, because the strike has been ruled unlawful by the courts.
The government estimates it will save 1 trillion naira ($6 billion) this year by eliminating the subsidy. Finance Minister Ngozi Okonjo-Iweala said 90 billion naira a year of the money saved would be spent on roads and other infrastructure, 57 billion on the railways and 60 billion on poverty safety nets.