By Stuart Grudgings and Matt Spetalnick
RIO DE JANEIRO (Reuters) - President Barack Obama will take in the sights of sunny Rio de Janeiro on Sunday as he courts Latin America on an economic and goodwill tour overshadowed by a U.S. and European air assault on Muammar Gaddafi's forces in Libya.
Obama enters the second day of what aides have called his signature first-term trip south of the border, intent on sticking to his packed agenda but with his attention divided by the biggest military intervention in the Arab world since the invasion of Iraq.
The military campaign against Gaddafi's forces launched on Saturday intruded on Obama's schedule of diplomacy and business promotion in the capital Brasilia and seemed certain to do the same in Rio where he will continue huddling regularly with top aides to stay on top of unfolding events.
Obama is seeking improved Brazilian relations after a period marked by tensions and neglect, during which China overtook the United States as Brazil's main trade partner.
He will spend the day visiting a vibrant metropolis that encapsulates what he called Brazil's "extraordinary" rise as a global power in recent years.
The White House has justified Obama's five-day Latin American tour in large part for its potential dividends of boosting U.S. exports to help create American jobs, also considered crucial to his 2012 re-election chances.
His talks on Saturday with Brazilian President Dilma Rousseff focused heavily on strengthening economic ties with Latin America's powerhouse, though little progress was made on key disputes.
Conservative critics at home may seize the opportunity to chide Obama for being away from Washington -- and in a city renowned for its pristine beaches -- at a time when he is putting U.S. forces in harm's way. Republican foes have accused him of a failure of leadership in a string of international crises.
But in keeping with the president's "no-drama Obama" image, the White House wants to avoid any sense he is being held hostage by events or unable to tend to other crucial business.
OBAMA'S RIO ITINERARY
Obama's only planned sightseeing in Rio will be to the city's iconic Christ the Redeemer hilltop statue, and even that had to be postponed from morning until evening to give him time for early briefings on the Libyan situation.
He will also visit Rio's famous City of God slum to inspect beefed-up security and poverty-fighting efforts there and will deliver what has been billed as a speech to the Brazilian people at a historic theater in the city center.
Thousands of Rio residents were disappointed this week when U.S. officials, without giving a reason, canceled plans for Obama to give an open-air address to a much bigger audience.
No matter the venue, Obama's message will have to compete for attention with hostilities in Libya.
U.S. warships launched cruise missiles on Saturday, joining France, Britain, Canada and Italy in attacks aimed at crippling Libyan leader Gaddafi's air defenses to stop his loyalists' advances into rebel-held areas.
Mindful of public concern of entangling the United States in another conflict on top of the wars in Iraq and Afghanistan, Obama took pains to stress the limited U.S. military role in Libya.
He insisted that U.S. forces were supporting, not leading, the international coalition against Gaddafi and there would be no commitment of American ground troops. Nevertheless, he could still face tough questions from anti-war liberals at home.
In Rio, festive crowds lined the streets to greet the arrival of Obama's motorcade at his beachfront hotel on Saturday night.
While polls show Obama popular among Brazilians, not everyone is welcoming him to the city of Carnival and samba. Police fired rubber bullets at a small group of leftist protesters on Friday after someone threw a Molotov cocktail at the U.S. consulate in the city center.
The city that seemed in inexorable decline a decade ago has been rejuvenated by Brazil's economic boom, the discovery of vast oil fields off its shores, its selection as 2016 Olympic host and a big improvement in security.
With crises rocking the Middle East and pushing up oil prices, the United States is taking a keen interest in the deep-sea oil reserves that Brazil is starting to tap off the Rio coast. Rousseff said on Saturday she saw opportunities for both countries to cooperate in developing the fields.
Officials and business leaders from both countries are due to hold meetings on Sunday to discuss investment opportunities around the oil development and an expected infrastructure boom arising from Rio's hosting of the Olympics.
Obama will leave Rio on Monday morning for a visit to economic success story Chile and will wrap up his regional tour on Wednesday in tiny El Salvador.
(Editing by Eric Beech)