By Andrei Khalip

RIO DE JANEIRO, June 27 (Reuters) - Security forces and drug traffickers battled with guns and grenades in a Rio de Janeiro slum on Wednesday after more than 1,000 policemen backed by armored cars invaded the area in a show of force before the Pan American Games.

Gangsters erected barricades and created oil slicks to prevent the armored cars from climbing the steep slum streets, witnesses said.

The gunfire was intense and numerous grenade explosions were heard, Agencia Estado news reported.

One officer was wounded and a woman bystander was hit by a stray bullet, officials said. Police killed four suspects, Globo news said, but officials could not confirm the toll.

The violence reinforced concerns about public security during the Pan American Games, which start on July 13.

Rio, the sixth-largest city in the Americas, will host 5,500 athletes from 42 countries and territories and nearly 800,000 tourists. Officials hope the event will showcase its legendary charms instead of exposing its out-of-control crime.

The state security office said Wednesday's operation in the Alemao slum complex was aimed at arresting drug traffickers and seizing drugs and weapons. About 1,200 state policemen backed by 150 troopers from a special national force took part.

Many shops shut their doors and parents rushed to take schoolchildren home after the gunfire started.

Police chief Gilberto Ribeiro said the raid was based on intelligence gathered since police occupied the neighboring Vila Cruzeiro slum on May 2.

Over 20 people have been killed and about 60, mostly innocent residents, have been wounded during regular shootouts between police and drug gangs in the area since then.

On Monday, police killed three suspects in a raid on a slum next to Rio de Janeiro's international airport, prompting air traffic control authorities to consider closing a runway.

President Luiz Inacio Lula da Silva warned last week that if violence in the slums -- many of which are controlled by drug gangs -- spilled into the Pan American Games, then foreign investors could take fright.

Rio has one of the highest murder rates in the world, with a toll comparable to some war zones. At least 1,800 people have been killed in the first four months of 2007 in the metropolitan area, official figures show.

About 7,000 troopers from the National Public Security Force will guard the streets, aided by 18,000 state police, some of whom will occupy the most dangerous slums. The heightened security scheme starts on Saturday.

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