UPDATE 1-EPA warns that US government shutdown delaying E15 gasoline proposal -sources

-sources@ (Adds comments and details; adds Washington to dateline)

NEW YORK/WASHINGTON, Jan 8 (Reuters) - The U.S. Environmental Protection Agency has warned at least two lawmakers that the federal government shutdown has delayed the agency's work on a rule expanding sales of higher-ethanol blends of gasoline, but that the plan could still be completed before summer, two sources briefed on the matter told Reuters.

President Donald Trump pledged to lift the summer ban on sales of so-called E15 gasoline in the run-up to November's mid-term elections, in a much-needed boost to an ethanol industry upended by trade wars and weak demand growth at home.

The Trump administration hoped to have the rule published by February and approved by June, but the EPA recently told the lawmakers that the timeline will be delayed due to the government shutdown, said the sources, who spoke to Reuters on Tuesday and over the weekend on condition of anonymity.

The EPA did not immediately respond to requests for comment.

The EPA currently bans the higher ethanol blend, called E15, during summer because of concerns it contributes to smog on hot days - a worry biofuels advocates say is unfounded. E15 gasoline contains 15 percent ethanol, versus the 10 percent found in most U.S. gasoline.

Trump's decision to lift the ban of summer sales of E15 was applauded by corn-belt farmers and lawmakers and criticized by the oil lobby as an illegal overreach by the EPA and its acting administrator, Andrew Wheeler.

The proposal is expected to be coupled with a slew of reforms to the credit-trading market that underpins the nation's renewable fuel policy.

Brooke Coleman, executive director of the Advanced Biofuels Business Council, said the EPA has been drafting the E15 proposal for a long time and should have no issues meeting its June 1 target. He said the EPA should delay the trading reforms if they are slowing the process down.

"That would keep the presidents promise to rural communities while taking some pressure off regulators," Coleman said. (Reporting by Jarrett Renshaw in New York and Chris Prentice in Washington Editing by Leslie Adler)