UPDATE 1-Funding gap could derail Bombardier streetcar deal

* Canada says project doesn't qualify for stimulus funding
* Ontario pledges C$416 million toward C$1.2 billion deal
* Toronto commits C$355 million for the 204 streetcars
* Funding, still 1/3 short, must be in place by June 27
* Bombardier shares little changed (Adds quotes from premier, mayor; updates share price)
By John McCrank
TORONTO, June 19 (Reuters) - A C$1.2 billion ($1.1 billion) project awarded to Bombardier Inc (BBDb.TO) to build a fleet of new streetcars for the city of Toronto may be in jeopardy after the federal government said the transit program would not qualify as part of its infrastructure stimulus fund.
Federal Transportation Minister John Baird said in Parliament on Friday that the project did not fall within the proper timeframe take advantage of the C$4 billion fund.
"One of the requirements of that stimulus fund is that we get projects moving quickly and that they conclude within the next two years," Baird said.
Under the agreement between Bombardier and the city, a prototype vehicle is to be delivered in 2011. The larger, more energy efficient streetcars would enter service by 2012, with all 204 delivered by 2018. The city has an option to buy another 400 for the second phase of the deal.
Financing for the contract must be completed by June 27.
Michael Ignatieff, the leader of the opposition Liberal Party, said the federal government would be missing out on a "good investment" if if turned its back on the project.
"The government has an opportunity to invest in public transit, to create jobs and to move the economy forward, all for an estimated C$312 million. It sounds like a good investment to me, the kind of investment that fuels economic recovery," Ignatieff told the House of Commons.
Baird said Ottawa is already supporting several public transit projects in Toronto.
"No government has been more supportive of public transit in the city of Toronto than this government," he said.
Last week, Baird used an expletive in a private comment, that was widely picked up by media, in response to demands from Canada's biggest city for infrastructure funding. He has since apologized for the comment.
ONTARIO AND TORONTO HOLD OUT HOPE
Ontario Premier Dalton McGuinty pledged C$416 million from the province, or one-third of the cost of the new fleet on Friday. The city of Toronto has committed C$355 million. But the one-third of the funding expected from Ottawa is in doubt.
McGuinty, whose province has seen its industrial base hit hard by the the recession, told reporters in Thunder Bay, Ontario, where the streetcars would be built, that Ontario and Toronto were continuing to hold "constructive dialogue" with Ottawa.
"I can't think of a single reason why they would not want to involve themselves in this opportunity," he said.
"We have some time and we will do everything that we can to consent, invite, prod, provoke, cajole, encourage, whatever we might, to encourage the federal government to come to the table."
Toronto Mayor David Miller said he was confident that the discussions with the federal government would bear fruit.
"Given the importance of this ... I'm positive that those discussions will result in moving forward. We just have to. We can't let this project fail."
According to Bombardier, manufacturing the streetcars would create more than 5,000 direct jobs and 10,300 indirect jobs in Ontario, which has recently seen thousands of workers lose jobs in the auto sector.
Shares of Bombardier were down 4 Canadian cents at C$3.33 on the Toronto Stock Exchange on Friday.