UPDATE 1-African leaders seek sanctions on Eritrea

* African Union says Eritrea helping rebels in Somalia

* AU summit drops resolution to boost peacekeepers

* Third day of heavy fighting in northern Mogadishu

(Releads with African Union resolution on Eritrea)

By Christian Lowe

SIRTE, Libya, July 3 (Reuters) - African leaders asked the United Nations on Friday to impose sanctions on Eritrea, saying it was aiding the Islamist rebels fighting government forces in nearby Somalia.

But the African Union, at a summit in Libya, did not adopt a proposed resolution to give African Union peacekeepers in Somalia a mandate to do more than just defend themselves from rebel attacks.

In the third day of heavy fighting in the north of Somalia's capital, Mogadishu, at least 16 people were killed and 30 were wounded, according to hospital officials, taking the death toll since Wednesday to more than 50.

The United Nations, Somalia's government and other groups accuse Eritrea of sending weapons and providing training for the insurgents. Eritrean officials deny that.