MEXICO CITY, Aug 20 (Reuters) - Hurricane Grace gathered strength as it barreled towards Mexico"s Gulf coast on Friday morning, threatening to lash the oil-producing state of Veracruz and central Mexico with strong winds and heavy rains. Grace, a Category 1 Hurricane, is forecast to strengthen further before it plows into the coast of Veracruz late on Friday or in the early hours of Saturday, the National Hurricane Center (NHC) said. It should then weaken rapidly as it dissipates over land during the weekend, the Miami-based NHC said. Veracruz and its waters are home to several oil installations including Petroleos Mexicanos" Lazaro Cardenas refinery in Minatitlan in the south of the state. Current forecasts showed Grace expected to hit Veracruz well to the north of the city. Through Sunday, the NHC said Grace would dump 6-12 inches (15-30 cm) of rain over large swathes of eastern and central Mexico, and up to 18 inches in some areas. The heavy rainfall would likely cause areas of flash and urban flooding, it added. "We ask the population to be very alert," Laura Velazquez, head of Mexico"s civil protection authority, told a regular news conference with President Andres Manuel Lopez Obrador. Grace pounded Mexico"s Caribbean coast on Thursday, downing trees and causing power outages for nearly 700,000 people, but without causing loss of life, authorities said. Earlier in the week, it doused Jamaica and Haiti with torrential rain. By Friday morning, Grace was about 185 miles (298 kilometers) east-northeast of the city of Veracruz, blowing maximum sustained winds of 85 miles per hour (137 km per hour), and moving west at 15 mph (24 kph), the NHC said. Reporting by Dave Graham Editing by Frances Kerry Our Standards: The Thomson Reuters Trust Principles.