UPDATE 2-U.S. steel firm defends Chinese investment

* Security fears "difficult to rationalize," company says

* U.S. industry group backs lawmakers' call for probe (Recasts, adds U.S. industry group comment)

By Doug Palmer

WASHINGTON, July 6 (Reuters) - A U.S. venture capital steel company that received an investment from a Chinese state-owned firm fought back on Tuesday against national security concerns raised by U.S. lawmakers.

Steel Development Co, whose first project is to build a steel "rebar" production mill in Amory, Mississippi, said less than 20 percent of its total investment came from China's Anshan Iron and Steel Group [ASISG.UL].

Since the new facility will produce less than three-tenths of 1 percent of the total U.S. market for concrete reinforcing bar steel, "the promotion of national security fears due to the Anshan investment is, at best, difficult to rationalize," the company said in a statement.

Last week, 50 members of the Congressional Steel Caucus urged U.S. Treasury Secretary Timothy Geithner to investigate whether Anshan's investment should be blocked on economic and national security grounds. [ID:nN02241776]

The bipartisan group said they were worried Anshan could gain "access to new steel production technologies and information regarding American national security infrastructure projects" through the investment.

Chinese government subsidies also could allow Anshan "to distort the American market and force American steelworkers to compete against a blank check," the lawmakers said.