By Lisandra Paraguassu

March 18 (Reuters) – The U.S. embassy will sponsor an event in Sao Paulo between U.S. investors and Brazilian firms looking to produce critical minerals on Wednesday amid diplomatic tensions ‌that threaten to overshadow talks to firm up Western Hemisphere supply chains.

The U.S. has been scrambling ‌to get access to critical mineral reserves, especially rare earths, as the supply chain is currently dominated by Chinese players.

Citi and Anglo American ​are expected to be in attendance as well as representatives from some Brazilian state governments.

Last week, officials from Brasilia pulled out of the Brazil–U.S. Forum on Critical Minerals, which a U.S. embassy spokesperson called Washington's first event on critical minerals in Latin America this year.

Bilateral relations soured after a far-right U.S. official asked to visit ex-President Jair Bolsonaro ‌in prison, which Brasilia saw as an ⁠attempt to meddle in domestic affairs. Brazil barred the envoy's entrance, citing "falsification" of reasons for the visit.

Brazilian officials also vented frustration in private at the U.S. decision to sign ⁠on Wednesday an agreement on critical minerals with Goias state Governor Ronaldo Caiado, a political opponent to leftist President Luiz Inacio Lula da Silva. The move was seen as an attempt to bypass the federal government, said one Brazilian official ​following ​the matter.

The perceived slight added to doubts about how long ​a recent thaw in U.S.-Brazil relations can last ‌ahead of what looks to be a tightly contested Brazilian election in October.

Last September, Lula met briefly at the U.N. General Assembly with U.S. President Donald Trump, who said the two had an instant rapport. But talk of Lula visiting the White House this month has petered out as attention in Washington shifted to a widening conflict in the Middle East.

Washington still hopes to sign a broader deal with Brasilia, the U.S. spokesperson said, ‌emphasizing a shared interest in partnering to develop Brazil's processing capacity.

Making ​strides in domestic processing is a priority for Lula, according to ​an official from Brazil's Ministry of Development, Industry ​and Foreign Trade, who requested anonymity to discuss ongoing talks.

U.S. officials see potential for ‌billions of dollars in investment and have identified ​more than 50 mining projects ​in Brazil that could bolster international efforts to diversify supply, easing China's dominance in critical minerals.

More than 100 companies and several state government representatives are expected to attend the event at the American Chamber ​of Commerce in Sao Paulo on ‌Wednesday, with local miners encouraged to pitch U.S. investors, one participant said.

(Reporting by Lisandra Paraguassu in ​BrasiliaAdditional reporting by Marcela Ayres and Bernardo Caram in Brasilia, Marta Nogueira and Fabio Teixeira in ​Rio de Janeiro;Editing by Brad Haynes and Aurora Ellis)