MEXICO CITY, Oct 14 (Reuters) - The U.S. State Department warned U.S. citizens on Tuesday to be extra cautious traveling in Mexico following a surge in drug violence this year, urging travelers to stick to main highways and well-known tourist destinations.

Heavily armed drug cartels have fought security forces in daytime shootouts, and last month suspected drug hitmen lobbed grenades into a crowded plaza as revelers celebrated a Mexican national holiday.

"Some recent Mexican army and police confrontations with drug cartels have taken on the characteristics of small-unit combat, with cartels employing automatic weapons and, on occasion, grenades," the State Department said in a statement on its website.

President Felipe Calderon's deployment of thousands of soldiers and federal police across the country to confront the powerful cartels has failed to curb the increasingly brazen attacks and bodies regularly turn up beheaded or tortured.

Crime is skyrocketing, especially along the U.S.-Mexico border where drug gangs are jockeying for control of trafficking routes. More than 1,000 people have been killed in the border city of Ciudad Juarez alone this year, a third of all the drug-related murders in the country.

There has also been a spike in kidnapping, and while the bulk of the victims have been Mexican, U.S. citizens have also been targeted on both sides of the border.

"Criminals have followed and harassed U.S. citizens traveling in their vehicles in border areas," the State Department said.

Americans should avoid showing off flashy jewelry and large amounts of cash, the statement said.

In some cases, criminals have worn police or military uniforms and driven cars that look like official police vehicles, it said. (Reporting by Mica Rosenberg; Editing by Eric Beech)

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