By Doug Palmer

WASHINGTON (Reuters) - Four senators on Tuesday urged President Barack Obama's administration to step up its fight against China's "hoarding" of critical rare earth elements by blocking funding for Chinese mining projects.

"Just like they do with their currency, the Chinese government engages in unfair anti-competitive and downright illegal practices involving these elements," Senator Charles Schumer told reporters.

China produces 97 percent of global rare earth supplies, giving it a stranglehold on a range of vital elements used in defense technologies, wind turbines and batteries for electric vehicles, computers and mobile phones.

Beijing cut export quotas by 40 percent last year, alarming buyers and trading partners. It has again cut export quotas for the first half of 2011 by 35 percent.

China says the export curbs are for legitimate environmental reasons, and has promised to work with importers such as Japan to find substitutes for the metals.

"We're calling on the administration to step up their efforts to combat china's hoarding of rare elements," Schumer said.

Schumer and three other Democrats urged Treasury Secretary Timothy Geithner in a letter to use U.S. influence in the World Bank and other multilateral banks to block funding for any Chinese mining project in China or elsewhere.

They also asked Interior Secretary Ken Salazar to block any Chinese mining project in the United States until the Chinese end their "anti-competitive practices" with regard to rare earth elements.

Senator Debbie Stabenow said the export restrictions are making it difficult for U.S. automakers to get the materials they need to build electric cars.

"We're now hearing from GM that, with the Chevy Volt, the supply of rare earths could limit their ability to roll out the electric vehicle. I'm sure this will apply to Ford as well, with the new Ford Focus," she said.

Schumer blamed the Chinese export curbs for the sharp increase in prices paid by New York manufacturer, Sydor Optics, that makes lenses for 3D movie projectors.

"They now pay $45 a pound for a critical element. They paid $8.40 just a short while ago," he said.

Japan's catastrophic earthquake and tsunami could ease the rise in rare earth prices in the short term, but overall demand is likely to continue to outstrip supply for the next few years, an industry official said on Tuesday.

The Obama administration has been considering for at least six months whether to challenge China's rare export restrictions as a violation of commitments Beijing made when it joined the World Trade Organization in 2001.

(Editing by John Whitesides and Mohammad Zargham)