Security forces fire at Damascus protest, 3 hurt

* Army defector's funeral turned into anti-Assad protest

* Economic hardship, Homs crackdown fuel unrest in capital (Adds details)

By Khaled Yacoub Oweis

AMMAN, March 8 (Reuters) - Syrian security forces shot and wounded three mourners on Thursday at a Damascus funeral for an army defector that turned into a protest against President Bashar al-Assad, residents said.

The funeral was taking place in the capital's Mezze district, home to several embassies and security facilities and overlooked by Assad's hilltop palace, when it came under fire.

"We were around 700 mourners. As soon as we carried the body around the mosque and headed to the cemetery, live ammunition was fired at us," said a witness who gave his name as Nader. "Security police beat people with sticks and broke into cars."

Demonstrations in Damascus have been expanding despite extra troop deployments and the use of live ammunition on protesters.

Opposition sources and residents said the protests were driven by inflation and the plunging value of the Syrian pound, as well as revulsion at military assaults in the city of Homs.

The Mezze funeral was for Mohannad al-Mulla, a conscript killed last week when he tried to desert from his unit, which was among troops besieging rebels in Homs, activists said.

Activist Moaz Abdallah said the three wounded were taken to makeshift clinics set up in private homes in Mezze. Protesters fear arrest if they seek treatment in hospitals.

"We are living a cycle (of violence) in Mezze. Young men demonstrate against Assad, mostly at night to evade the security police. They get shot at, and by day their funerals turn into demonstrations, which in turn are attacked," Abdallah said.

The United Nations estimates more than 7,500 civilians have died during Assad's crackdown on a popular uprising. (Reporting by Khaled Yacoub Oweis; Editing by Alistair Lyon and Robert Woodward)