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RIO DE JANEIRO (Reuters) - Brazil's most wanted arms trafficker, an alleged weapons supplier for Rio de Janeiro's biggest criminal gang the Red Command (CV), was captured in southern Paraguay on Wednesday, Rio authorities said, as they battle growing crime in the city.

Marcelo Pinheiro Veiga, known as Marcelo Piloto, was arrested in the town of Encarnación after hiding out for years in Paraguay, which neighbours Brazil. From there he sent arms, drugs and ammunition to favelas dominated by Rio's largest gang, Rio state authorities said in a statement on Wednesday.

A police source who declined to be named confirmed that the gang was the CV.

The U.S. Drug Enforcement Administration participated in the arrest of Veiga, who is wanted for murder, trafficking, and criminal association, the statement said.

Rio's authorities are seeking to combat rising crime in the seaside tourist destination. Earlier this month, they arrested Rogerio "Rogerio 157" Avelino, a drug trafficker whose turf war with his former gang chief fuelled spiralling violence in Rio's Rocinha favela.

Crime has spiked this year, as police have struggled to maintain security gains made in the run-up to the 2016 Olympics. A deep economic crisis has spurred big cutbacks in spending on police and other services.

(Reporting by Alexandra Alper and Rodrigo Viga Gaier, Editing by Rosalba O'Brien)

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