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UPDATE 3-Canada PM optimistic, says successful NAFTA deal is likely

(Recasts with upbeat comments by Trudeau, U.S. trade representative quote)

OTTAWA, March 21 (Reuters) - Canadian Prime Minister Justin Trudeau said on Wednesday that a successful deal to renegotiate NAFTA is likely amid signs negotiators may be closer to settling one of the regional trade pact's most contentious issues.

Trudeau's comments were his most upbeat yet about talks to update the $1.2 trillion North American Free Trade Agreement, known as NAFTA. Officials are due to meet in April for an eighth round of negotiations, which have bogged down as Canada and Mexico attempt to digest Washington's far-reaching demands for changes.

"We remain very confident that a win-win-win deal is not only possible, but likely," Trudeau told a Toronto business audience.

People close to the process say the U.S. side, citing the need to finish before Mexican presidential elections in July, is showing more flexibility.

Toronto's Globe and Mail newspaper reported U.S. negotiators had dropped their insistence that all autos made in NAFTA countries should have 50 percent U.S. content. Canada and Mexico had rejected the demand.

The news helped boost the Canadian dollar to a six-day high against its U.S. counterpart while Mexico's peso firmed more than 1 percent.

A spokesman for Canadian Foreign Minister Chrystia Freeland declined to comment on the report.

U.S. Trade Representative Robert Lighthizer on Wednesday said the three countries in NAFTA were "finally starting to converge" on auto content requirements, telling the House Ways and Means Committee that "we are in a very good place."

A Canadian source familiar with the talks said the United States was now willing to discuss its stance on autos. The source, who declined to be identified given the sensitivity of the situation, said it was unclear whether Washington had withdrawn the U.S. content demand.

U.S. President Donald Trump has threatened to abandon NAFTA unless it is reformed to his liking.

A senior legislator from Trudeau's ruling Liberal Party told reporters nothing could be taken for granted.

"There are good signs ... (regarding) automobiles, but it's too soon to declare any sort of progress that's definitive," said Andrew Leslie, parliamentary secretary to Freeland.

Mexico's economy minister last week said if the three nations did not finish the talks by the end of April, the process would drag on at least until December.

Mexico's presidential vote is to be held on July 1 while U.S. congressional elections are set for November.

Flavio Volpe, President of the Toronto-based Automotive Parts Manufacturers' Association, said the U.S. side had shown more willingness to compromise on content over the last month.

"Everything I hear and see supports the notion that we are collectively working toward a completion" of NAFTA rather than preparing for a U.S. withdrawal, he said by phone.

David MacNaughton, Canada's Ambassador to the United States, on Tuesday cited movement on autos, but stopped short of saying Washington had dropped its content demand.

"They came back with some ideas that - if you take them to their logical conclusion - would mean that you wouldn't need that requirement," he said.

"Did we get to somewhere where you could shake hands and say 'We've got a deal?' Absolutely not." (Additional reporting by David Chance and Steve Holland in Washington; editing by Susan Thomas and G Crosse)