By Todd Benson

RIO DE JANEIRO, April 16 (Reuters) - Getulio Vargas Hospital might as well be located in a war zone. Run-down, underfunded and flanked by some of Rio de Janeiro's most violent shantytowns, it treats gunshot wounds almost daily.

"The only difference with a war is that here there are no truces," said Dr. Carlos Chaves, the hospital's director. "We get people who have been shot at all hours of the day. One minute everything is fine. The next minute it's chaos."

Last year, it treated 473 people for gunshot wounds, 27 of them children. The count stood at 131 people in the first three months of 2007, a pace that if maintained would easily surpass last year's toll.

The drama at Getulio Vargas Hospital is an example of the rising violence that plagues Rio, a sultry metropolis as famous for its spectacular beaches and soothing bossa nova rhythms as for its crime-ridden shantytowns, or favelas.

Long the face of Brazil to the outside world, Rio has a death rate often compared to a country at war. In the last three years, 19,381 people were killed in the state of Rio de Janeiro, most of them in the Rio metropolitan area. That's more than six times the number of U.S. deaths in Iraq since 2003.

Though slum dwellers bear the brunt of the violence, the city's landscape -- hillside favelas straddle plush apartment buildings -- has helped bring the malaise to the doorstep of the wealthy. Bystanders rich and poor are caught in the cross-fire so often that the city recently started tallying casualties from stray bullets as an official statistic.

"This is the worst I've ever seen it," said Luke Dowdney, an anthropologist and author of a book on children involved in Rio's multimillion dollar drug trade.

THREAT TO TOURISM

Rampant crime has made Rio, whose economy depends heavily on tourism, a difficult and costly place to do business. Businesses in the city spent $1.3 billion last year to beef up security, money that could have been invested to expand and increase staff, according to the chamber of commerce.

And while it is hard to quantify the impact violence has on commerce, business leaders say it clearly hurts the economy.

"It's not how much we lose, it's how much we fail to earn because of violence," said Alexandre Sampaio, president of the local union representing hotels, bars and restaurants.

While violence is rising all around Brazil, Rio is in a rush to quell the chaos. The city will host the Pan-American Games in July and local authorities hope to use the occasion to showcase Rio as a world-class metropolis.

To ensure safety, the new state governor, Sergio Cabral, broke an age-old taboo and asked the federal government for help. President Luiz Inacio Lula da Silva responded by dispatching 450 troops from a national security force. By July, close to 6,000 troops will be patrolling the streets.

VIGILANTE GROUPS

In the meantime, police have stepped up raids in favelas in a bid to rein in drug gangs, resulting in shootouts that further drive up the death toll. In January alone, 526 people were killed in Rio, up from 480 in same month in 2006, official statistics show. At least 576 more were murdered in February and March, according to a Web site (http://www.riobodycount.com.br) that tracks violent deaths.

But the crackdown has done little to blunt the rise of vigilante groups known as militias, which have multiplied in Rio's slums in recent months and are now increasingly cited by foreign consulting firms as a major threat to stability.

Made up mostly of off-duty and retired policemen, the militias charge fees from residents to bring safety to the favelas but are often as violent as the drug gangs they seek to root out.

Cabral has compared the militias to paramilitary groups in Colombia and has ordered that those officers with ties to the groups be punished. But until officers are paid more -- on average they earn $450 a month -- experts say police corruption and militias are likely to continue to thrive.

Law enforcement officials, however, insist the militias are less of a threat and are easier to combat than drug gangs.

"Are the militias a problem? Yes. But they are less of a problem than drug trafficking and arms trafficking," said Marcio Derenne, deputy security secretary of Rio de Janeiro state.

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