Someone recommended the street party in Lapa on a Friday night. I would agree with this as it's an amazing night out, but I would warn people to keep their wits about them. I've been twice now on separate trips a year apart and the second time (August 2005) it seemed a lot more crowded and definitely more shifty.
This maybe something to do with the fact that it's now in the trusty Lonely Planet as a 'Rio essential' so there are far more tourists now, which inevitably attracts more unsavory characters. I'm not saying this to be a travel snob - when we were there guns were fired at the top of the famous steps which resulted in a stampede and a nasty crush at the bottom. It's still a great night - just stay away from the top of the steps (the farther up you go the more shady it gets) and go in a big group if possible. Oh, and stay away from the brightly coloured shots in the plastic tubes - they're lethal and taste revolting - have a caipirinha!
Lapa - near Cinelandia metro.
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