* Factory production shut down
* Suez Canal shipping unaffected
* Protests linked to soccer violence, reflect wider unrest
* Mursi moves to reinstate Port Said free trade zone
By Shaimaa Fayed
CAIRO, Feb 19 (Reuters) - Thousands of Egyptian workers joined a protest wave in Port Said on Tuesday, paralyzing factory production in the Suez Canal city despite President Mohamed Mursi's efforts to soothe unrest by acting to restore its free port status.
Witnesses said at least 10,000 people took part in the third day of demonstrations to demand justice for dozens of people killed during rioting in the Mediterranean port last month.
The head of the Suez Canal Authority said movements on the canal - an artery for global shipping and one of Egypt's biggest foreign currency earners - were unaffected by the protests in Port Said, which lies at the waterway's northern entrance.
Port Said was one of three provinces near the canal where Mursi declared a 30-day state of emergency after last month's unrest, which was linked to soccer violence but reflected wider economic discontent with the Islamist government in Cairo.
"The regime is provoking the people of Port Said and not tending to their demands. We will not retreat from civil disobedience and will continue to escalate matters day after day," said Amani El Elaidy, one of the protesters.
Unrest flared in Port Said after death sentences were given to 21 fans of its al-Masry soccer club for involvement in a stadium disaster a year ago when more than 70 people died.
Tuesday's day of "civil disobedience," called by hardcore al-Masry supporters, had a much greater impact on the local economy than the previous two days. Factory production was halted in the city's investment zone and schools were empty, with many teachers and students joining the protests.
The protesters called for the appointment of a neutral judge to investigate the deaths of around 40 people in Port Said last month. They also demanded the removal of Port Said's governor and Egypt's interior minister.
On Monday evening Mursi presented a draft law to the Shura Council - Egypt's temporary legislature - to reinstate Port Said's free trade zone and allot 400 million Egyptian pounds ($60 million) annually from the Suez Canal's revenues to develop cities along the waterway.
The Council agreed to this, state television said on Tuesday, but the move fell short of the city's demands.
"Port Said's streets are boiling because of President Mohamed Mursi's neglect ... Mursi does not consider Port Said to be on Egypt's map," said another protestor, Mohamed Said.
Egypt set up the duty-free trade zone in the 1970s. However, former President Hosni Mubarak - toppled by an uprising two years ago - decided to phase out its privileges more than a decade ago, damaging the local economy.
Al-Masry fans also prevented thousands of workers commuting from neighboring cities including Ismailia and Sharkia from getting to factories in the Port Said investment zone.
$1 = 6.7316 Egyptian pounds Reporting by Yousri Mohamed; Writing by Shaimaa Fayed; Editing by David Stamp and Mark Heinrich