Our reporter says hundreds of people - friends, family, colleagues and
diplomats - crowded outside Mr Kato's family home in the village of
Nakawala in Mukono district, 40km (about 25 miles) from Kampala.
Many members of the lesbian and gay community wore T-shirts with Mr
Kato's portrait on the front and the words "La luta continua [the
struggle continues]" printed on the back.
They were shocked when the priest started condemning homosexuals.
"You must repent. Even the animals know the difference between a male
and a female," he said, before warning that they would face the fate of
residents in Sodom and Gomorrah, the biblical cities destroyed by God.
Gay rights activists then stormed the pulpit and prevented the priest
from continuing.
An excommunicated priest who has in the past called for people to
respect the rights of homosexuals then presided over the rest of the
service.
Police have made one arrest in connection to Mr Kato's murder in his
home near Mukono town.
The main suspect - who the police say was living in Mr Kato's house -
remains on the run.
"His homosexuality has not come up as an issue in the preliminary
investigation," police spokeswoman Judith Nabakooba told Reuters news
agency.
"At the moment, we think theft is the most likely motive," she said.
There has been a recent spate of "iron-bar killings" in Mukono in which
people have been assaulted with pieces of metal.
Witnesses have told the BBC that a man entered Mr Kato's house and beat
him to death before leaving.
Smug's executive director Frank Mugisha told the BBC Mr Kato had
recently been concerned about the threats he had received.
"He was killed by someone who came in his house with a hammer, meaning
anyone else could be the next target."
US Secretary of State Hillary Clinton has urged authorities to
investigate and prosecute the killers.
The UN refugee agency head Antonio Guterres has said people facing
persecution for their sexual orientation in Uganda should be given
refugee status in other countries.