Members of the State Federation of Rowing and others take part in a protest against violence at Rodrigo de Freitas lagoon, where a cyclist was killed the week before during a bicycle robbery, in Rio de Janeiro, Brazil, in this file picture taken May 24, 2015. REUTERS/Sergio Moraes/Files

By Stephen Eisenhammer

RIO DE JANEIRO (Reuters) - When shots rang out last month in the first gun battle in seven years between Rio de Janeiro police and drug traffickers in Santa Marta, its reputation as a peaceful slum with stunning views and a popular samba night was shattered.

No one was injured in the maze of alleys and steps of the "favela" that is home to 6,000 people, but the shootout raised concerns a police campaign - for which Santa Marta was the model - is running out of steam a year before half a million visitors arrive for the 2016 Olympics.

The shootout, in the wake of the stabbing deaths of a cyclist and a German tourist, sparked fears that after years of progress, violence was on the rise again in Brazil's postcard city.

"I'm worried things are going to go back to how they were," said Aldinho, who declined to give his last name for fear of repercussions, as he served beers from a stall on the lower steps of Santa Marta where the favela climbs a steep outcrop beneath the Christ statue.

Official figures support his view. Last year, the number of robberies in the city of Rio rose 25 percent, the biggest jump since records began in 1991. The trend continues, with a 10 percent rise recorded in the first three months of 2015.

Rising unemployment, low police morale and a growing sense of hopelessness among Rio's poor are contributing to greater crime, say security and development experts.

The trend is depressing for a city that strived to use last year's soccer World Cup and the Summer Olympics to make Rio safer. The 2014 World Cup staged in 12 cities across Brazil passed largely without incident after pre-tournament street protests and a security clampdown.

"The years when security improved were the years when the economy was booming, people's lives were getting better and they had hope," said Theresa Williamson, head of Catalytic Communities, a charity that works with favela residents.

"Now that's disappearing," she said.

Booming commodity exports, a consumer binge and ambitious social welfare programs fueled a decade of steady economic growth that lifted 35 million Brazilians from poverty. But since 2012 the economy has stalled, as commodity prices fall and consumer demand dwindles, putting Brazil on track for its deepest recession in a quarter of a century this year.

MURDER RATE STUCK

At the heart of Rio de Janeiro's security drive was the so-called "pacification" of favelas, in which police set up units within communities previously controlled by drug gangs.

Authorities credited the program for helping to halve the murder rate between 2006 and 2012 but it has attracted criticism for an excessive use of force by some police officers that resulted in deaths of innocent people.

The decline in murders was a fundamental part of the city's renaissance as it became a center for Brazil's oil and mining industries and grew again as a tourist destination.

But the murder rate is stubbornly stuck at 20 per 100,000 people, still putting Rio among the world's most dangerous major cities. It is three times higher than the four previous Summer Olympic hosts put together.

Olympic organizers say they are working closely with authorities to ensure a safe environment during the Games and that Rio has a strong track record hosting big events. Rio plans to employ 60,000 security personnel during the Games, a source with direct knowledge of the plans told Reuters.

As the first favela to be "pacified," Santa Marta became a model for the program. On a recent sunny afternoon it was easy to see why.

A guide showed tourists around while children played soccer on an artificial pitch overlooking Rio and the Atlantic ocean.

Lieutenant Gabriel Cavalcante dismissed last month's shootout as an "isolated incident" and said the police presence had since been beefed up. The culprits were identified but escaped, likely into thick jungle around Santa Marta.

"A sense of peace and calm has been restored," Cavalcante said.

But others think the return of violence to Santa Marta is a mark of a crumbling empire.

REMINDER OF 'BAD DAYS'

Since 2008, police units known as UPPs have been introduced in 38 favelas creating a network which now employs around 10,000 officers.

One officer in Santa Marta, who asked not to be identified because he was not permitted to talk to journalists, said he thought the program had been expanded too quickly and was suffering from a varying quality of officers.

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