By Gustavo Palencia

TEGUCIGALPA (Reuters) - The murder rate in Honduras, the Central American country with the world's highest number of homicides per capita, fell last year according to a United Nations-affiliated report released on Monday, although the number of "atrocious crimes" ticked up.

Honduras has suffered a wave of violence in recent years, as Mexican drug cartels have expanded into the country, enlisting local street gangs and using the country's often lawless Caribbean coastline as a pit stop for U.S.-bound cocaine from South America.

The murder rate fell by 6.5 percentage points in 2013, a security institute sponsored by the U.N. and part of Honduras' national university said in its annual report.

Migdonia Ayestas, who leads the institute, told Reuters that violent homicides fell to 79 per 100,000 people last year from 85.5 in 2012.

"But we saw a noticeable increase in the number of atrocious crimes, including mutilations and decapitations, with bodies thrown into the street, which cause terror in the population," she said.

The atrocities, which are a relatively new phenomenon in Honduras, bear the hallmarks of Mexican cartels, who engage in a grisly form of one-upmanship to instill fear in rival gangs.

Honduras, a country of some 8.5 million people, suffered an average of 19 murders each day in 2013, down from 20 the year before, the report found.

Neighboring El Salvador has regularly had the No. 2 murder rate for countries not at war, although comparable figures were not immediately available.

Putting an end to Honduras' cycle of violence was the main theme in last year's election, won by the National Party's Juan Hernandez. He has vowed to restore order, adopting a militarized approach to taming the warring gangs.

Critics say a similar military-led move in Mexico, rolled out by former President Felipe Calderon in 2007, only served to increase the violence as the cartels splintered, creating dangerous power vacuums.

Others fear the possibility of rights abuses as soldiers do a job usually performed by police.

(Reporting by Gustavo Palencia; Writing by Gabriel Stargardter; Editing by Eric Walsh)