* Fuel price hikes part of subsidy reform necessary for IMF loan
* Energy subsidies cost Yemen $3 billion last year
* Attacks on oil pipelines slash crude export earnings (Adds official confirmation of protester killed, quotes)
SANAA, July 30 (Reuters) - One woman was killed in protests that erupted in Sanaa on Wednesday after the Yemeni government announced a rise in fuel prices.
Witnesses and a medical source told Reuters the protester was killed as the army fired into the air in an attempt to break up a demonstration near the presidential palace. A security source later confirmed the death to the state news agency and said another protester was injured.
The government increased fuel prices after spending about $3 billion on energy subsidies last year, nearly a third of state revenue. Yemen has been trying for over a year to secure a loan of at least $560 million from the International Monetary Fund (IMF) but the fund is pressing for subsidies to be slashed.
Yemen's finance minister told Reuters in May that the Fund's board was expected to finalise the deal this month.
However, a similar attempt to raise fuel prices by the government in 2005 led to violent protests in which 20 people were killed and more than 300 wounded. The measure was subsequently cancelled.
Along with pressure from the IMF, the reform has also become more urgent in recent months because frequent militant attacks on oil pipelines have badly hurt Yemen's export earnings.
Sanaa earned just $671 million from exporting crude oil in January-May, down nearly 40 percent from a year earlier.
This has also led to a serious fuel shortage as attacks deprive the state of revenue to buy fuel products, angering the public. Analysts argue that some of the money freed up by the subsidy reform could be used to address the crisis affecting pumps all over the country but especially in Sanaa.
According to an official document circulated to petrol stations by the oil ministry and seen by Reuters, the government raised official prices of petrol to 200 Yemeni riyals ($0.93) per litre and diesel to 195 riyals.
When supplied despite the shortage, pumps in Sanaa sold a litre of petrol at the official, subsidised price of 125 riyals, below the roughly 300 riyals currently charged on the black market.
The price of diesel, widely used for generating electricity, was 100 riyals per litre officially and 250 riyals on the black market.
Wednesday's protests were largely contained, but security forces remain on high alert as many Yemenis are expected to be on the road on Thursday as the holiday marking the Muslim Eid al-Fitr festival ends.
More civil unrest in the country of around 25 million - where a third of the population lives on less than $2 a day - could feed into the country's general instability which a range of anti-government forces could try to exploit, including al Qaeda-affiliated militants.
Yemen's president took other measures regarding public sector spending this month, including a feasibility review of state-owned companies and a ban on all but economy class travel for ministers. (Reporting by Mohammed Ghobari; Writing by Rania El Gamal; Editing by Maha El Dahan and Raissa Kasolowsky)