* Unions, president to resume talks on Saturday
* Strikes, protests, rallies supended for weekend
* Oil workers threaten to cut output from Sunday (Adds strike suspension, union quotes, police clashes)
By Joe Brock and Camillus Eboh
ABUJA, Jan 13 (Reuters) - Nigerian unions suspended strikes and protests for the weekend on Friday while talks take place between union leaders and government over the scrapping of a popular fuel subsidy, but warned of more industrial action if there was no resolution.
Domestic airports would reopen to allow union leaders to fly to the capital of Africa's biggest crude oil producer to hold delicate talks with government officials but if no agreement could be reached strikes would resume next week.
"The labour movement and its civil society allies after nationwide consultations has decided that Saturday and Sunday will be observed as strike, protest and rally-free days," a joint statement from Nigeria's main labour unions said.
"We ask Nigerians to utilise these days to rest, restock and get re-energised for the continuation of the strikes, rallies and protest from Monday."
Tens of thousands of people have taken to the streets and staged strikes for five straight days in cities across Nigeria in protest against the removal of fuel subsidies on Jan. 1, which more than doubled the pump price to 150 naira ($0.93) per litre from 65 naira.
Pressure is mounting on President Goodluck Jonathan to reach a deal in Abuja over the weekend. Nigeria's main oil union had threatened to shut down output from Sunday if the government did not reinstate the subsidy.
Central Bank Governor Lamido Sanusi told Reuters the strikes were costing Africa's second biggest economy around $600 million a day, based on a daily average of GDP for the year.
The fuel subsidy confrontation is another serious setback for Jonathan as Nigeria, whose population is roughly evenly split between Christians and Muslims, has also been rocked by a series of attacks by Islamist militants.
Although demonstrations over the subsidy have been mostly peaceful there were clashes between police and crowds and at least three protesters have been shot dead by police. One police officer was arrested for shooting dead a man in Lagos.
Workers had earlier joined protests in cities on Friday, after trade unions broke off talks with Jonathan and said they would not restart until Saturday. Crowds dispersed after the union leader's announcement.
The statement on Friday said that unions would hold internal meetings to decide what to take to the talks with the president.
The threat of a cut in oil output, which provides the government with 80 percent of its revenues, was a deciding factor in starting negotiations, political sources said.
Industry officials doubted unions would be able to stop crude oil exports completely because much of production is automated and Nigeria has crude stored in reserves, but even a minor outage could have a significant impact on the economy.
In the heaving commercial hub Lagos, thousands staged protests on Friday morning, many had said they were determined to carry on until the government met their original demands.
"Nigerians are not happy with what is happening. We will walk all the way from Lagos to Abuja to fight the government," said Linus Antony, a 42-year-old businessman.
"Listen to the people when you negotiate. We will accept 65 naira (pump price) no more, no less," another said, standing in front of crowds dancing as colourful musicians played on a makeshift stage.
In many parts of the mostly Muslim north of the country protests had stopped and crowds gathered to pray in mosques. Some were resigned to a compromise being made.
"If the government will be sincere with what it pays to subsidise fuel, the labour and government should agree on a common front," said Abdullahi Mustapha, a civil servant in Kano, Nigeria's oldest city and the second largest after Lagos.
"My wish is that any decision should not hurt Nigerians, the economy or this great nation."
Ministers and some analysts say the subsidy fuelled corruption, favoured richer people who could afford cars and drained resources from Nigeria.
Main unions said they had "fruitful" talks with Jonathan on Thursday night, leading to media speculation that the two sides might be approaching a compromise.
"There are no talks today because we have to go back to our members and discuss the options with all the stakeholders. We are a democratic organisation," NLC's vice president Isa Aremu told Reuters.
Presidency sources say the sticking point in talks was the price of petrol, which unions want returned back to 65 naira. One solution may be for the government to pay a percentage of the subsidy, which reduces along a sliding scale over time.
This could give the government time to convince the public it will spend money saved from the subsidy on promised social programmes and local refinery maintenance.
Sanusi said the key for the government was to get unions to agree to subsidies being removed, even if this was to happen in the future.
Worries over Nigerian oil supplies have pushed up global oil prices in the last two days.
Nigeria produces more than 2 million barrels of crude oil per day and is a key supplier to the United States, Europe and Asia. Crude oil exports provide Nigeria with more than 90 percent of foreign exchange revenues.
Economists say keeping the subsidy in place would force Nigeria into huge external borrowing, but Nigerians, many of whom live on less than $2 a day, see it as their most tangible welfare benefit.
Despite holding the world's seventh-largest gas reserves and producing over 2 million barrels per day (bpd) of crude, decades of graft and mismanagement mean Nigeria has to import almost all of its fuel needs.
$1 = 162.0500 Nigerian naira Additional reporting by Ibrahim Mshelizza, Mike Oboh, Austin Ekeinde and Tife Owalabi; Writing by Joe Brock; Editing by Peter Millership