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OAXACA, Mexico, Aug 29 (Reuters) - Stores, restaurants and other businesses in this popular tourist city went on a 24-hour strike on Tuesday to demand an end to blockades and violence, as the government tried to kick-start peace negotiations.

Three months of demonstrations aimed at toppling Oaxaca state Gov. Ulises Ruiz spiraled out of control last week when gunmen believed to be off-duty police twice opened fire on protesters, killing one person. Five people have been killed this month.

The city's tourism-based economy has greatly suffered, as normally stunning colonial facades are defaced with graffiti and angry activists armed with sticks and burning tires have replaced colorful Indian markets in the central plaza.

In response to the deteriorating crisis, businessmen hung white flags over the locked doors of supermarkets, banks and restaurants on Tuesday, and called on President Vicente Fox and Ruiz to restore order.

"We demand security for our economic and social activities, without which Oaxaca will not return to the path of growth," they said in national newspaper ads, complaining protests by striking teachers were costing jobs and sales and shutting thousands of schools.

The flocks of travelers who come to Oaxaca to drink the region's fiery Mezcal liquor and soak up the city's lively art scene have dwindled in recent months.

Long queues formed at stores and gas stations on the eve of the strike as people stocked up on basic items. On Tuesday, the streets, normally buzzing with activity, were deserted as even locals stayed in their homes.

The businessmen's strike involves 20,000 workers and a loss of nearly $6 million in revenue, according to Eduardo Garcia Moreno, head of Oaxaca's chamber of commerce.

Many residents hope the one-day strike will help bring an end to the current mayhem by prompting action from federal authorities.

In Mexico City, leaders of the Oaxacan People's Popular Assembly and the teachers union met on Tuesday with state representatives and federal government mediators to try to reach agreement to end the protests.

After several hours, talks were called off until Thursday. Fox's spokesman, Ruben Aguilar, said the negotiations included discussion of demands that Ruiz step down.

Critics say the governor has ridden roughshod over his critics, using riot police to resolve conflicts.

The protests began as a peaceful sit-in strike by about 40,000 teachers demanding higher pay, but have escalated in recent weeks with anti-Ruiz demonstrators seizing local radio stations, barricading roads and burning buses.

The violence has heightened tensions as Mexico is already embroiled in a crisis over fraud allegations in last month's presidential election.

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