UPDATE 3-NAFTA negotiators still divided, but cite progress in talks

(Adds U.S. Trade Rep comment)

MONTREAL, Jan 29 (Reuters) - The United States, Canada and Mexico said they had made progress in the latest round of talks to renegotiate the North America Free Trade Agreement, although the American representative said progress was still very slow.

Expectations are now that the talks to try and salvage the $1.2 trillion free trade pact will continue but last well beyond the original March deadline as elections loom in Mexico.

"We finally began to discuss the core issues, so this round was a step forward. But we are progressing very slowly," said Robert Lighthizer, the U.S. representative at the talks on Monday.

Heading into the sixth of seven planned rounds of talks in Montreal last week, some officials had feared the United States might be prepared to pull the plug on the pact amid frustration over slow progress.

The mood lightened after Canada presented a series of suggested compromises to address the main U.S. demands for reform.

"For the next round, we will still have substantial challenges to overcome. Yet the progress made so far puts us on the right track to create landing zones to conclude the negotiation soon," said Economy Minister Ildefonso Guajardo.

After previous rounds of NAFTA talks, Canadian Foreign Minister Chrystia Freeland, Mexican Economy Minister Ildefonso Guajardo and Lighthizer have issued a joint statement but will not do so this time, said three sources close to the talks.

"That's unusual," said one of the sources, who declined to give more details.

U.S. President Donald Trump, who has described the 1994 pact as a disaster that has cost manufacturing jobs, frequently threatens to announce he is withdrawing from the deal. His comments have unsettled markets that fret about the potential damage to a highly integrated North American economy.

Officials from all three nations are now suggesting the talks could extend beyond the end-March deadline, which had initially been set to avoid interfering with a Mexican presidential election in July.

The three sides are still far apart over U.S. demands to boost regional auto content requirements and require 50 percent U.S. content in North American-built vehicles.

Other challenges are Washington's demands that NAFTA largely eliminate trade and investment dispute-settlement systems and contain a "sunset" clause to force renegotiations every five years. (Writing by David Ljunggren; Editing by Bernadette Baum and Nick Zieminski)