Iraqi Kurdish forces capture strategic border crossing and several villages from Islamic State fighters in northern Iraq

* U.S. forces hit fighters in north Iraq and south of Baghdad

* Iraqi Kurds say they have retaken half the ground lost in early August

* Fighters keep up siege on Syrian Kurdish city near Turkish border

By Isabel Coles and Jonny Hogg

ARBIL, Iraq/MURSITPINAR, Turkey, Sept 30 (Reuters) - Iraqi Kurdish forces captured a strategic border crossing and several villages from Islamic State fighters in northern Iraq on Tuesday, scoring gains as the militants were pounded by heavy U.S.-led air strikes and the Iraqi army advanced from the south.

An Iraqi Kurdish political source said Kurdish peshmerga fighters took control of the Rabia border crossing with Syria in a battle that began before dawn.

"It's the most important strategic point for crossing. Once that's taken it's going to cut the supply route and make the operation to reach Sinjar easier," the source said, referring to a mountain further south where members of the Yazidi minority sect have been trapped by Islamic State fighters.

Twelve Islamic State fighters' bodies lay on the border at the crossing after the battle, said Hemin Hawrami head of the Kurdish Democratic Party's foreign relations department, on Twitter.

The ability to cross the frontier freely has been a major tactical advantage for Islamic State fighters on both sides. Fighters swept from Syria into northern Iraq in June and returned with heavy weapons seized from fleeing Iraqi government troops, which they have used to expand their territory in Syria.

U.S.-led forces have been bombing Islamic State targets in Iraq since August and expanded the campaign to Syria last week in an effort to defeat the fighters who have swept through Sunni areas of both countries, killing prisoners, chasing out Kurds and ordering Shi'ites and non-Muslims to convert or die.

In two complex, multi-sided civil wars, the Sunni fighters are battling against Shi'ite-backed government in both countries, rival Sunni groups in Syria and separate Kurdish forces on either side of the frontier.

Washington hopes the strikes, conducted with European allies in Iraq and with Arab air forces in Syria, will help government and Kurdish forces in Iraq and moderate Sunnis in Syria.

In Iraq, a coalition of Iraqi army, Shi'ite militia fighters and Kurdish troops known as peshmerga have been slowly recapturing Sunni villages that had been under Islamic State control south of the Kurdish-held oil city of Kirkuk.

"At dawn today, two villages near Daquq, 40 kilometres south of Kirkuk, Peshmerga forces liberated them from Islamic State," an Iraqi security official said.

Islamic State fighters had used positions in the villages to fire mortars at neighbouring Daquq, a town populated mainly by ethnic Turkmen Shi'ite Muslims. When Kurdish fighters entered the villages they were empty, the security official said.

GROUND SHAKING BENEATH OUR FEET

Forces were also pushing north from the city of Tuz Khurmatu to drive Islamic State fighters out of the countryside that surrounds Kirkuk, the official said. He credited U.S.-led air strikes with helping the peshmerga clear the two villages.

"This area witnessed intense air strikes from U.S.-led strikes and Iraqi air strikes overnight and at dawn," the official said.

The explosions shook Kirkuk itself: "We felt the ground shaking beneath our feet, and then we heard that there were air strikes outside Kirkuk," said a policeman in the city contacted by Reuters who asked not to be identified.

Peshmerga secretary-general Jabbar Yawar estimated the Iraqi Kurds had now retaken around half the territory they lost when the militants surged north towards the regional capital Arbil in early August, an advance that helped to prompt the U.S. strikes.

"We have absorbed the shock and are pushing them back," Yawar said.

In addition to aiding the Kurds in the north, U.S. air strikes have targeted fighters west of Baghdad and on its southern outskirts, where militants have infiltrated difficult rural terrain known during the U.S. occupation as the "triangle of death".

Iraqi officials said U.S. and Iraqi air strikes had killed dozens of Islamic State fighters the previous day south of the capital.

"It appears that 67 (Islamic State) militants were killed in Fadiliya," said an Iraqi security source, referring to a town in the Euphrates valley south of the capital. He said the casualty estimate came from satellite imagery and informants.

SIEGE IN SYRIA

Unlike in Iraq, where the U.S.-led air strikes are coordinated closely with the government and Kurdish forces, Washington has no powerful allies on the ground in Syria, making its strategy there riskier and more precarious.

The United States and its Western and Arab allies oppose the government of President Bashar al-Assad and are wary of helping him by hurting his enemies. Turkey, the neighbour with the biggest military, has so far held back from joining the U.S.-led coalition, despite an advance in the past 10 days by Islamic State fighters against Kurds near the frontier that has caused the fastest refugee exodus of the three-year civil war.

The fighters have laid siege to Kobani, a Kurdish city on Syria's border with Turkey. The rattle of sporadic gunfire could be heard from across the frontier, and a shell could be seen exploding in olive groves on the western outskirts of town.

A steady stream of people, mostly men, were crossing the border post back into Syria, apparently to help defend the town.

Ocalan Iso, deputy commander of the Kurdish forces defending the town, told Reuters Kurdish troops had battled Islamic State fighters armed with tanks through the night and into Tuesday.

The Syrian Observatory for Human Rights, a body that monitors the war with a network on the ground, said U.S.-led strikes had hit Islamic State positions west of Kobani. Kurdish commanders have complained in recent days that the air strikes hitting elsewhere were not helping them at the front. (Additional reporting by Yara Bayoumy, Raheem Salman and Ned Parker in Baghdad and Oliver Holmes in Beirut; Writing by Ned Parker and Peter Graff, editing by Peter Millership)

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