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UPDATE 1-Britain wants trade deal with EU "much closer than Canada"- Davis

* Says Britain "can go further" than EU-Canada trade deal

* Expects transition period of around two years

* Expects May to stay for Brexit negotiations "and beyond" (Recasts with more quotes, background)

BERLIN, Nov 16 (Reuters) - Britain wants the freest possible trade in goods and services with the European Union in a Brexit deal that goes further than the bloc's trade agreement with Canada, Brexit Secretary David Davis said on Thursday.

Dismissing as "incredibly unlikely" the possibility of negotiations with the EU breaking down without a deal, Davis expected Britain would need a transition period of around two years after it leaves the bloc before new arrangements kick in.

Since EU leaders agreed last month to ready negotiations on the future relationship with Britain, the 27 states that will remain in the bloc have looked closely at the trade deal it agreed last year with Canada as a model, EU diplomats say.

"We can go further than that because we already have established supply chains," Davis told a business conference in Berlin.

"We will be a third country partner like no other: much closer than Canada, much bigger than Norway and uniquely integrated in everything from energy networks to services."

He added: "The key pillar of this will be a deep and comprehensive free trade agreement the scope of which should be beyond any that the European Union has agreed before."

PROSPERITY FIRST

Despite scepticism from his audience of German business leaders, Davis said he wanted a "mutually beneficial Brexit."

"Putting politics before prosperity is never a wise choice," he added, playing up the shared values between Britain and Germany.

During the transition period, Britain would continue to have access to the EU market and abide by EU regulations, he said.

"After we leave the European Union, we will not engage in a race to the bottom," Davis added. "That would mean lower standards and poorer prospects for our workers."

"After Brexit, Britain will have an independent trade policy and we will use it to lead a race to the top on quality and standards across the globe."

"We don't pretend we can have all the benefits of membership of the single market without those obligations. However, we are seeking a new framework for close economic partnership," he said.

Describing himself and chief EU negotiator Michel Barnier as "determined optimists", Davis said he hoped the European Commission would be able by Christmas to proceed to the next stage of Brexit negotiations - on future ties between Britain and the EU.

"At the end of the day, he very much wants this to succeed. So do I," Davis added.

Of infighting and departures from the British government cabinet, he said: "This is a period of turbulence. This will pass." He expected Prime Minister Theresa May to remain in office for the duration of the Brexit negotiations "and beyond." (Editing by Peter Graff)