RIO DE JANEIRO (Reuters) - Parts of a mutilated body washed up on the sands of Copacabana Beach in Rio de Janeiro on Wednesday, police said, just meters (yards) from where beach volleyball athletes will compete in the upcoming Olympics.

The discovery, first reported to a newspaper by a Rio street vendor, is the latest to unnerve the city as it grapples with rising crime, a recession and exhausted state finances at a time when it hoped to be celebrating the first Olympics ever held in South America.

It was unclear Wednesday afternoon what conditions may have led to the mutilated body but a policeman standing guard by a security perimeter confirmed its existence to Reuters.

Police officials did not immediately return calls to their public affairs office for more details Wednesday afternoon.

The Olympics, which start August 5, were intended to show off an economic boom that has since fizzled in Latin America's biggest country. Now the games come as the state of Rio de Janeiro awaits emergency funding of 2.9 billion reais ($892 million) to ensure financing for public services.

The Olympics also will play out with a backdrop of political instability as Brazil's Senate tries suspended President Dilma Rousseff, who is accused of accounting tricks in the government budget, to determine whether she will be ousted for good. The trial is expected to finish after the games.

The state in recent months, even as it races to complete a new subway line and other key pieces of infrastructure promised for the Olympics, has missed crucial debt payments and has been forced to postpone purchasing and salary payments for everyone from public health workers to police.

Rio's acting governor, Francisco Dornelles, earlier this month declared a financial emergency in the state because of budget shortfalls caused by a recession, plummeting oil revenues and a run-up in public expenditures in recent years.

He has fretted publicly that the Olympics could be "a big failure" if financing does not come through but Brazil's federal government has said that it will.

Earlier this week, police and firemen demonstrated at Rio's international airport, protesting their missed wages and greeting arriving passengers with a sign reading "Welcome to Hell."

(Reporting by Caio Saad and Leandra Camera; Editing by Bill Trott)