* Company said on Sunday halting most work on pipeline
* Shares in Canadian unit fall as much as 19 percent
* New York-listed parent gains (New throughout with more comment from business groups, investors)
April 9 (Reuters) - Business groups and local officials called on Monday for Canada's government to guarantee an expansion of the Trans Mountain pipeline is completed, after operator Kinder Morgan Canada halted most work on the C$7.4 billion ($5.83 billion) project.
Shares of the operator, spun off by its U.S. parent to raise funds for the project a year ago, fell as much as 19 percent on Monday to their lowest since its stock exchange listing after chief executive Steve Kean announced the halt on Sunday.
Shares in Kinder Morgan's New York-listed entity rose just over 1 percent.
Craig Wright, chief economist at Royal Bank of Canada, said that not increasing pipeline capacity had the potential to knock C$10 billion off wealth generation in Canada annually by adding to a sustained discount for the country's crude oil.
Canadian crude trades at a discount to the U.S. oil benchmark, with tight pipeline and rail capacity sending the Western Canadian Select differential sharply wider than normal earlier this year. It was trading at $16.25 on Monday, according to Shorcan Energy brokers.
Transport bottlenecks threaten to make the oil far harder and more expensive to export in years to come without an increase in the capacity of pipelines that take the oil to the West Coast and on to the United States. The Trans Mountain pipeline - one of Canada's three biggest - was approved by Prime Minister Justin Trudeau's government but is being opposed by British Columbia's government, many municipalities, some aboriginal groups and environmental activists concerned about possible oil spills.
Kean said on Sunday he would scrap plans to nearly triple the capacity of the pipeline, which carries crude from Alberta's oil sands to a facility in British Columbia, unless legal challenges are resolved by May 31.
"The Trans Mountain Expansion is in the national interest and if it fails to move forward, it will send a strong negative signal to investors at home and abroad that we, as a country, are not open for business," Perrin Beatty, President and CEO of the Canadian Chamber of Commerce, said.
Trans Mountain's expansion, for which U.S.-listed Kinder Morgan had spun off a separate Canadian unit, is a major promise by Trudeau's government, which approved the plan in 2016.
Trudeau took to Twitter to reiterate his stance after the company's decision, saying the project "will be built".
It was not yet clear how Trudeau intended to make the project work after the Kinder Morgan decision.
Alberta premier Rachel Notley said on Sunday the province was prepared to be an investor in the pipeline. She told a televised meeting of her cabinet on Monday that she was still very hopeful of a solution.
"The federal approval of a project must be worth more than the paper it is written on," she said.
Analysts wondered if the decision to halt work on Trans Mountain would have a spillover effect on other pipeline projects, many of which are already embroiled in similar problems.
"I am certainly not optimistic about the future of it because of ... historically what's going on here with pipeline development in the last decade," said Kelly Ogle, President of the Calgary-based Canadian Global Affairs Institute.
"Rail lacks capacity.. the KXL (Keystone pipeline) is several years away at least, Energy East is not happening.. this is a sad state for oil transport and it's a giant resource that we are leaving behind."
Shares of rival TransCanada Corp, whose Keystone pipeline drew substantial preliminary orders from oil companies, rose 0.9 percent to C$53.47 amid a broader market rally.
Kinder Morgan Canada's shares pared some losses and were down 8.4 percent at C$16.89 in afternoon trading. ($1 = 1.2695 Canadian dollars) (Additional reporting by Fergal Smith in Toronto; Writing by Nivedita Bhattacharjee; Editing by Arun Koyyur and Patrick Graham)