Arab League chief discusses unrest with Yemen

(Adds protests in south in paragraphs 7, 8)

SANAA, Oct 6 (Reuters) - Arab League chief Amr Moussa said on Tuesday Arab states supported the unity of Yemen, which faces a Shi'ite rebellion in the north and secessionist unrest in the south.

The United States and Saudi Arabia, the world's leading oil exporter, fear that a northern war between the army and Zaydi Shi'ite Muslims, as well as frequent street clashes with separatists in southern Yemen, could create further instability that al Qaeda could exploit to carry out attacks.

The Sunni Islamist militant group has staged a comeback with attacks on government and foreign targets over the past two years.

"(The Arab League) affirms its support for Yemen's unity, security and stability," Moussa told reporters after meeting Yemeni President Ali Abdullah Saleh. He declined to say if the Arab League would attempt to mediate in either of the two conflicts. "Any initiative or proposal must serve stability and unity ... Comprehensive national dialogue is the way," Moussa said.

Arab countries allied to the United States, such as Saudi Arabia and Egypt, fear Shi'ite power Iran could gain influence in Yemen through the Shi'ite rebels. Iran has denied any involvement but urged Sanaa to end the conflict peacefully.

Hundreds took to the streets of towns in southern provinces including Radfan, Zinjibar and al-Habilayn on Tuesday, witnesses and southern news websites said.

Protesters held up banners calling for Arab states to protect the south, a formerly independent state that united with northern Yemen in 1990, pro-south Aden Press said.

Southerners complain of political and economical marginalisation by the north, even though their region holds most of the poor country's oil resources.

The northern Zaydi rebels also say they suffer religious discrimination by Sunni fundamentalists who have gained in strength because of President Saleh's close ties to Saudi Arabia, which adheres to a puritanical form of Sunni Islam.

The government and the rebels have both offered ceasefires since fighting erupted in August when the government launched an operation in the north to crush them.

The fighting in the north has killed hundreds and displaced tens of thousands.

Reporting by Mohamed Sudam, and Mohammed Mukhashef; Writing by Andrew Hammond