City boss Pep Guardiola wants a right-sided centre-back after choosing not to sign a replacement when former skipper Vincent Kompany retired in 2019.
Napoli's Kalidou Koulibaly, 29, was initially the top target, but Napoli want £80m for the Senegal defender, which City are not prepared to pay.
Dias, 23, has impressed during three seasons at Benfica and was selected for Portugal's 2018 World Cup squad.
Guardiola is assessing a number of options before the transfer window closes on 5 October.
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