MCALLEN, Texas – Dozens of Mattel Inc. employees were on their way to another day of work making Power Wheels in Mexico's industrial heartland when gunshots erupted around them and a grenade ripped into one of their buses, killing one worker and wounding five.

The battle between drug traffickers and the army near the city of Monterrey last week was the sort of violence that is frightening US companies away from new investments south of the border, where organized criminals are increasingly turning to kidnappings, extortion and cargo thefts despite a government offensive against drug cartels.

"These acts of violence are not happening in a vacuum; they're happening in the street that could be right out in front of your building. Bullets get shot and they have to stop somewhere," said Dan Burges, a senior director at Freightwatch Inc., an Austin-based cargo security firm.

As a result, only half of the US firms surveyed recently by the US-Mexico Chamber of Commerce said they would go ahead with new investment plans in Mexico and several companies, including Whirlpool Corp., have recently announced they would put new factories elsewhere citing concerns about safety.

More than 35,000 people have died in drug-related violence since President Felipe Calderon deployed thousands of federal security forces four years ago to fight traffickers. In recent months, nearly 400 bodies have been pulled from mass graves in the northern states of Tamaulipas and Durango. There are near-daily reports of drug-gang executions, kidnappings and extortion.