UPDATE 5-Egypt needs to fix economy, strike IMF deal-Kerry
* Kerry on first visit to Arab world since taking office
* Egypt needs to cut energy subsidies - senior U.S. official
* Opposition to boycott lower house elections
* Protesters burn Kerry pictures outside foreign ministry
CAIRO, March 2 (Reuters) - Egypt's need to get the economy back on its feet is paramount and urgent, and the government should strike a loan deal with the IMF, U.S. Secretary of State John Kerry said on Saturday.
Egypt's foreign currency reserves have dived to little more than a third of levels before the 2011 revolution and its pound has lost more than eight percent against the dollar since the end of last year.
"It is paramount, essential, urgent that the Egyptian economy get stronger, that it gets back on its feet," Kerry told Egyptian and U.S. business executives in Cairo. "It's clear to us that the IMF arrangement needs to be reached, that we need to give the market that confidence."
The Islamist government of President Mohamed Mursi said on Thursday it would invite an IMF team to reopen talks on a $4.8 billion loan that was agreed last November but put on hold at Cairo's request during street violence the following month.
Kerry arrived in Egypt on his first visit to the Arab world since taking office for talks with the leaders of a country mired in political and economic crisis two years after the overthrow of autocrat Hosni Mubarak.
Kerry said he would talk to Mursi on Sunday about things the United States could offer Egypt, including economic assistance, support for private business and boosting Egypt's exports to the United States. "But they are only things that we can do with the ... confidence that you make your choices, knowing that Egypt is going to make the right fundamental economic decisions with respect to the IMF," he said.
Earlier, a senior U.S. official said Kerry would stress the importance of Egypt achieving political consensus for painful economic reforms needed to secure the IMF loan.
The United States believed Egypt needed to increase tax revenues and reduce energy subsidies - measures likely to be highly unpopular if Mursi's Muslim Brotherhood government were to force them through.
"His basic message is it's very important to the new Egypt for there to be a firm economic foundation," the official told reporters as Kerry flew to Cairo.
"In order for there to be agreement on doing the kinds of economic reforms that would be required under an IMF deal there has to be a basic political ... agreement among all of the various players in Egypt," the official said on condition of anonymity.
Egypt's investment minister has expressed hope that a deal could be done with the IMF by the end of April.
The loan was put on hold due to street violence that flared in protest at a planned rise in taxes. While the tax rise was withdrawn, Mursi is likely to face violent protests as any cuts in subsidies demanded by the IMF will push up living costs in a country where poverty is rife.
Energy subsidies soak up about 20 percent of the government budget, bloating a deficit set to soar to 12.3 percent of annual economic output this financial year.
CLASHES IN EGYPTIAN CITIES
A group of anti-Mursi demonstrators set fire to pictures of Kerry at the Foreign Ministry, the state MENA news agency reported. Kerry was due later at the building for talks with Foreign Minister Mohamed Kamel Amr.
Earlier, the demonstrators had marched from Tahrir Square, the centre of the 2011 uprising. Some held up cartoons of Kerry, portraying him with an Islamic beard, saying "Kerry - member of the Brotherhood". Others banners said "Kerry, you are not welcome here" and showed the characteristic moustache and fringe of Adolf Hitler superimposed on pictures of Mursi.
The protest was peaceful. However, youths fought interior ministry police on Saturday in the Nile Delta city of Mansoura, where one protester was killed and dozens injured. In the Suez Canal city of Port Said, protesters torched a police station, security sources said.
While these protests were unrelated to Kerry's visit, they were examples of the frequent outbreaks of unrest faced by Egypt's government. Clashes are commonplace, with protesters demanding that Mursi reform the interior ministry's police force. Police reform was a key demand of the uprising that toppled Mubarak.
Kerry will stress the need for agreement across the political spectrum on reforms and winning approval in the Shura Council, Egypt's upper house of parliament.
"What they need to do is ... things like increasing tax revenues, reducing energy subsidies, making clear what the approval process will be to the Shura Council for an IMF agreement, that kind of thing," said the official.
Hopes for consensus between the ruling Islamists and opposition parties seem slim. Liberal and leftist opposition parties have announced a boycott of parliamentary elections, scheduled for April to June, over a new constitution produced by an Islamist-dominated assembly and other grievances.
Kerry said he came to Egypt not to support any particular party or person but to show the U.S. commitment to democracy and human rights.
"We believe it's very important for the Egyptian people to come together around those values, but also to come together to meet the economic challenge (at) this particular moment," he said.
Kerry met opposition leaders on Saturday but many senior figures were missing from the round table talks, including Hamdeen Sabahy, who came a close third in presidential elections last year but had refused to attend the meeting.
However, Kerry met separately with Amr Moussa, a former Arab League Secretary-General and defeated presidential candidate, and spoke on the telephone with another party leader, former U.N. nuclear agency head Mohamed ElBaradei.