Northern Ireland struggles to heal deep fracture
* Sporadic riots, low living standards persist
* Much of Belfast still divided on religious lines
* Economy making progress but still catching up
BELFAST, July 28 (Reuters) - When U.S. President Barack Obama visited Northern Ireland before the G8 summit in June, he hailed its extraordinary progress in the 15 years since a peace agreement to end three decades of what locals call "The Troubles".
On the other side of Belfast the next day, a petrol bomb thrown over a fence dividing Protestant from Catholic communities exploded next to a four-year-old girl playing in the street - just one example of sporadic violence still haunting the British province.
The region of 1.8 million people is striving to heal a sectarian divide that mapped onto a deadly political rift between "loyalists" supporting the union with Britain and "nationalists" seeking unification with the Republic of Ireland to the south.
With more than 3,500 people killed during 30 years of paramilitary violence, deep-rooted enmity between the communities still leads to outbreaks of unrest - the latest around Protestant street parades that take place every July.
"It's like an earthquake zone," said Naomi Long, a lawmaker in the London parliament and deputy leader of the non-sectarian Alliance Party. "You have these divided communities and they rub along against each other, and suddenly something erupts."
In Belfast, symbols of the divide are inescapable, from the British flags flying from loyalist houses and the "peace walls" that separate Protestant from Catholic areas, to the hundreds of murals on the homes of both communities, some depicting balaclava-clad gunmen. (http://www.belfast-murals.co.uk/slideshow.html)
Hailed by London and international policymakers as an example of conflict resolution and economic progress, Northern Ireland has made great strides since the 1998 Good Friday Agreement. But with traditional heavy industry in decline, it remains an economic laggard.
While data does not break out total output for the province, several indicators show it trailing the rest of Britain. With 3 percent of the UK's population, Northern Ireland has its lowest labour productivity, slowest growth in disposable income and largest proportion of people with no qualifications, according to statistics office data.
The province gets about 10 billion pounds ($16 billion), half its total public sector spending, through an annual block grant from London. About a third of the population is employed in the public sector, the highest level in the UK.
Peace has brought more investment in areas such as technology, film making and tourism thanks to relatively low labour costs, though multinationals prefer Ireland, where corporation tax is 12.5 percent, versus 23 percent in the north.
That has helped bring unemployment down to 7.8 percent, about the UK average yet still close to a 15-year high.
"Peace is the obvious improvement - for the first time ever, we have a whole generation who didn't experience the Troubles," said Ann McGregor, head of Northern Ireland's Chamber of Commerce. "We still need to create more jobs."
The province still carries a psychological burden from its troubled history, too. It had the highest rate of post-traumatic stress among 30 countries surveyed by the University of Ulster, at 9 percent, and its health services pay twice as much per capita for antidepressants as they do in England.
TROUBLE ON THE MARCH
For decades the traditional Protestant marches in July have sparked violent clashes, as Catholics see them as provocation when they pass the areas where they live. The peace deal has not stopped this annual dose of bad publicity for the province.
This month, rioters with bare chests threw petrol bombs, bottles and fireworks at police, who responded with water cannon and rubber bullets, after authorities stopped Protestant marchers from following a traditional route in Belfast.
Most of the trouble was away from commercial areas, but images of riots still hurt business and tourism, which Northern Ireland has sought to boost with a 97 million pound museum at the shipyard that built the Titanic. Its second city Londonderry - nationalists scorn the 17th-century addition of the London prefix and know it as Derry - is also hoping for gains from its designation as the 2013 UK City of Culture, a scheme to generate social and economic benefits through the promotion of cultural events.
The business community focuses on the improvement since 1998, with Belfast's city centre - once a dead zone - now thriving and the number of foreign investment projects jumping 41 percent in the last year. But it remains exasperated by the sporadic sectarian trouble.
"Is this going back to where we were? That's certainly not the case; these are isolated areas, but it is damaging," said Nigel Smyth, who heads the local branch of the CBI industry association. "A negative image is a negative image, and people relate that to Northern Ireland."
During weeks of violence early this year, hotels reported sharp drops in occupancy rates and retailers a 30 percent fall in sales. With marchers now gathering each Saturday on the edge of the nationalist Ardoyne area, butcher Mark Maguire reckons it is costing half his shop's weekly business.
"Saturday is our busiest day, and there's no one coming in at all," said Maguire, wearing matching apron and hat behind the meat counter. "We open up, but it all just dies away. I wish they'd stop."
(Additional reporting by Ian Graham; Editing by Will Waterman)