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UPDATE 2-U.S. trade body continues probe of dumping claims against Bombardier jets

jets@ (Recasts first paragraph; adds reaction from Bombardier, Canadian government, Boeing)

WASHINGTON, June 9 (Reuters) - The U.S. International Trade Commission on Friday gave a green light to the U.S. Commerce Department to begin preparing anti-dumping and anti-subsidy duties against new jets from Canada's Bombardier Inc based on claims by U.S. rival Boeing.

The ITC, as expected, voted to continue an investigation on Boeing Co's complaint that Bombardier dumped its CSeries jet below cost in the U.S. market while benefiting from unfair subsidies.

The case could lead to steep duties on Bombardier's newest 110- to 130-seat jets.

The Commerce Department must now determine any preliminary anti-subsidy duties by around July 22, with a deadline for preliminary anti-dumping duties around Oct. 3.

The ITC will have a final say on whether to reject any duties.

The case has fueled trade tensions between the United States and its northern neighbor, with Canada calling on Boeing to abandon the anti-dumping challenge and threatening to scrap plans to buy the company's fighter jets.

Bombardier spokesman Mike Nadolski said by email that the decision "was expected given the very low bar for Boeing in this first step of the process. Going forward, we are confident that a detailed review and analysis of the facts will demonstrate that Boeings claim is without merit."

Canadian Foreign Ministry spokesman Alex Lawrence reiterated that Canada would defend the interests of its aerospace industry and workers.

"We are reviewing current military procurement that relates to Boeing," Lawrence said in an emailed statement.

Boeing did not respond when asked if it was pleased with the ITC decision. Boeing spokesman Dan Curran said by email that Boeing's near century-old relationship with Canada "will continue to thrive after this commercial trade matter is resolved."

Coupled with Canada's announcement that it is pressing ahead with stopgap fighter purchases, the reactions hint at the careful path Boeing must tread in attacking Bombardier while trying to preserve its defense and other aerospace relationships with Canada.

Boeing has argued that the CSeries program would not exist without hundreds of millions of dollars in launch aid from the governments of Canada, Quebec and Britain, or a $2.5 billion equity infusion from Quebec and its largest pension fund in 2015. It warned that Bombardier's actions could upset the wider market and erode future sales of Boeing's best-selling 737.

Boeing wants the U.S. government to investigate the 2016 sale of 75 CSeries aircraft to Delta Air Lines for what the American planemaker calls the "absurdly low" sum of $19.6 million each, despite the jet costing $33 million to build.

Bombardier, which described Boeing's $19.6 million figure as "absurd," has countered that the 110-seat CS100 plane it sold to Delta does not compete with Boeing's smallest 737 model, the 130-seat 737 MAX 7.

Bombardier recently dismissed industry suggestions that the dispute could slow efforts to accelerate sales of its CSeries jet.

If the Commerce Department investigation finds that duties on the Bombardier aircraft are warranted, they would be aimed at offsetting any below-cost pricing or subsidies deemed unfair.

In a separate ruling, the World Trade Organization largely cleared the United States of unfairly supporting Boeing, but noted it had failed to withdraw a tax break in Washington state, where Boeing builds most of its aircraft.

(Additional reporting by Allison Lampert in Montreal and Eric Walsh in Washington; Editing by Jeffrey Benkoe and Dan Grebler)