(Rewrites throughout with suspect's arrest)

MEXICO CITY, Oct 22 (Reuters) - Mexico has captured a drug trafficker who once tried to smuggle a tonne of cocaine through the capital's airport in 25 suitcases and was sought for the beheading of customs agents, police said on Wednesday.

Jesus "The King" Zambada, whose brother Ismael is a leader of the feared Sinaloa cartel, was captured with 16 others after a gunbattle with police in a Mexico City neighborhood on Monday.

More than 100 police and soldiers transported the prisoners in a heavily armed convoy to jail, where they were presented to the media along with confiscated rifles plated with silver and gold and pistols with pearl holsters.

Zambada was known for moving massive amounts of drugs through Mexico City airport with the help of corrupt customs authorities, a source from the attorney general's office told Reuters.

In February 2007 he dispatched $18 million worth of cocaine stuffed into 25 suitcases to Mexico from Venezuela. Officers found them on an airport carousel.

Police also believe Zambada was behind the killings of several employees of a private customs firm who were found beheaded near the capital's airport.

The Sinaloan drug traffickers are locked in a battle for dominance with the Gulf cartel and gruesome tit-for-tat killings have claimed more than 3,725 lives this year alone.

President Felipe Calderon has deployed thousands of troops and police to drug hot spots around the country, but failed to quell violence and extortions by cartels.

On Wednesday, businesses in Ciudad Juarez, across the U.S. border from El Paso, Texas, vowed to withhold taxes until the government provides improved security in the city with the highest death toll from the drug war. (Reporting by Anahi Rama and Mica Rosenberg in Mexico City and Robin Emmott in Monterrey; editing by Mohammad Zargham)

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