* Leaders from Kenya, Ethiopia meet President Salva Kiir
* Minister says rebels captured some oil wells in Unity state
* Oil minister says rebels may damage wells (Edits, adds comments from Kenyatta, violence victim)
By Carl Odera and Aaron Maasho
JUBA, Dec 26 (Reuters) - Rebels in South Sudan have seized some oil wells and captured half of the capital of the main oil-producing region, the government and army said on Thursday as African leaders held talks to avert civil war.
Kenyan President Uhuru Kenyatta and Ethiopian Prime Minister Hailemariam Desalegn met South Sudan's President Salva Kiir in the capital Juba in an attempt to end nearly two weeks of fighting in the world's newest state.
"South Sudan is a young nation that should be spared unnecessary distractions in its development agenda. Take wisdom and stop the loss of innocent lives," Kenyatta said in a statement.
Ethiopian Foreign Minister Tedros Adhanom called the talks "very constructive and very candid". It was not clear whether the delegation also met the rebel leader, former vice president Riek Machar, who was sacked by Kiir in July.
Violence erupted in Juba on Dec. 15 and has quickly spread, dividing the landlocked country of 10.8 million along ethnic lines between the Nuer - Machar's people - and the Dinka, to whom Kiir belongs. The head of the U.N. mission in Sudan said well over 1,000 people had been killed.
Rebels and government troops clashed in Malakal, capital of the major oil-producing state, Upper Nile, for the third day in a row, army spokesman Philip Aguer said.
"They control half of the town and government troops control the other half. They will be defeated soon," Aguer said by telephone. No comment was available from the rebel side.
Petroleum Minister Stephen Dhieu Dau said the rebels had captured oil wells in Unity state, where production was shut down earlier this week due to fighting.
"Some oil wells are in the hands of rebel soldiers loyal to former vice president Riek Machar and we fear they may cause damage to the facilities and the environment," Dau told Reuters.
Dau said oil output, which fell by nearly a fifth to 200,000 barrels per day when the Unity state oil fields shut down, had not been affected by clashes in Malakal. Most of South Sudan's oil is pumped in the Upper Nile region.
The United Nations said on Thursday about 58,000 civilians have sought refuge in its compounds across South Sudan.
Kiir and rebel leader Machar say their disagreement is political. But many of the civilians seeking safety in the U.N. bases say ethnic bloodletting has left them paralysed with fear.
Lina Yohanis, a 22-year-old mother of two, said her sister was killed by soldiers who targeted her because she was a Nuer. "They poured fuel on her and burned her," Yohanis told Reuters in a sprawling U.N. compound in Juba.
With tears rolling down her cheeks, she added: "The politics of South Sudan are becoming politics of tribalism."
Earlier in the week, a United Nations human rights body said it had found a mass grave in Bentiu, the capital of Unity state, containing what were believed to be bodies of Dinka soldiers.
The U.N. said it hoped within the next 48 hours to begin receiving critical reinforcements of military hardware and personnel for its overstretched peacekeeping mission.
China, which has significant oil interests in South Sudan, said it would send its special envoy for Africa to help bring about talks between Kiir and Machar.
"China is highly concerned about the evolving situation in South Sudan," Foreign Minister Wang Yi said.
Western powers and east African states, keen to prevent more chaos in a fragile region, have not been able to get Kiir to meet Machar, whose whereabouts are unknown. He told Reuters on Monday he was "in the bush".
The U.N. estimates 92,500 people have been displaced during the 12 days of fighting that has sparked the biggest crisis in the country since it gained independence from Sudan in 2011.
Ethiopian Foreign Minister Adhanom said regional leaders would meet in Nairobi on Friday to follow up on issues raised during the three-hour talks with Kiir and his cabinet in Juba.
Kenyan President Kenyatta said the conflict was not ethnic-based and the media should stop creating "negative impressions". He also urged Machar and Kiir to meet for talks. (Writing by Drazen Jorgic; Editing by Mark Trevelyan)