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UPDATE 2-Bombardier CSeries flight testing halted after engine problem

(Adds analyst's comment, reaction from Pratt, context on engines and competition)

TORONTO, May 30 (Reuters) - Bombardier Inc's new CSeries jetliner suffered an "engine-related incident" during stationary maintenance testing on Thursday, prompting a halt to flight tests and dealing another blow to the plane maker's effort to compete with Boeing and Airbus in the narrow-body market.

Bombardier said on Friday it was investigating the incident with Canadian authorities and engine maker Pratt & Whitney, a unit of United Technologies Corp.

Bombardier's shares closed down 2.4 percent at C$3.69 on the Toronto Stock Exchange.

Pratt spokeswoman Sara Banda said it was too early to say whether the incident could affect the broader development program for the engine, known as a geared turbofan (GTF), which offers better fuel efficiency than previous models.

But she said Pratt still expects to meet or exceed all its commitments related to the GTF program.

A similar Pratt engine will power the rival Airbus A320neo, but the risk of the CSeries test failure affecting the Airbus timetable is remote, said Richard Aboulafia, an aerospace analyst at the Teal Group, in Fairfax, Virginia.

"Given all the testing the engine has been through, the incident is likely to be pretty minor," Aboulafia said.

"But given all the headaches of the CSeries, this is another headache Bombardier doesn't need."

Bombardier is spending billions to develop the CSeries, which will compete with Boeing Co's 737 MAX as well as the Airbus A320neo. It unveiled the plane more than a year ago to fanfare and high expectations, but has struggled with delays and slow sales.

It was not immediately clear whether the engine incident sprang from a production problem that would be simple to fix, or a more serious design flaw that could require more time and money to repair.

By being first to market with a new, fuel-efficient narrow-body plane, Bombardier had hoped to capture significant orders, but its advantage is shrinking with the CSeries delays.

The plane's first flight last September was more than nine months behind schedule. In January, Bombardier pushed out the date of the CSeries' entry into service to the second half of 2015, the same target Airbus has for the A320neo. The CSeries was originally due in service at the end of 2013.

While serious problems are rare, engines occasionally fail during testing. Pratt had to redesign a component of a similar engine last year, when tests revealed distress in the hot core.

Transport Canada certified the CSeries engine in February 2013 and Pratt has completed more than 9,000 hours of testing in the GTF program, more than half of it on the version of the engine designed to power the CSeries, Banda said.

($1=$1.08 Canadian)

(Reporting by Allison Martell in Toronto and Lewis Krauskopf New York.; Editing by Alwyn Scott, Jeffrey Hodgson, Steve Orlofsky and Peter Galloway)