Ontario budget deficit narrowed by 11 pct -source

* 2010-11 deficit will come in at C$16.7 billion

* Reduced shortfall reflects spending cuts, better economy

* Ontario gov't to present new budget on Tuesday

* Fiscal plan comes ahead of fall election campaign

* Timeframe for balancing books unchanged for 2017-18

TORONTO, March 28 (Reuters) - Ontario's budget deficit shrank by 11 percent in the current fiscal year, a government source said on Monday, a sharper reduction than the previous estimate thanks to reduced spending and a stronger economy.

The province's deficit for the fiscal year to the end of March will drop by C$2 billion ($2.1 billion) to C$16.7 billion, the source said, compared with an economic update given in November.

Ontario Finance Minister Dwight Duncan on Tuesday will present the province's last budget before an October election. Duncan and the ruling Liberals are under pressure to provide a convincing plan to bring the provincial finances into balance.

The latest deficit estimate for the the year ending March 31 is C$3 billion less than the estimate given in last spring's budget.

The government of Canada's most populous province and manufacturing hub also sees slightly smaller deficits over the next three years, said the official, who was not authorized to speak on the record. The government is sticking with its plan of returning to balance by 2017-18, the official said.

That includes a C$16.3 billion deficit for 2011-12, (C$1 billion less than previously expected) and a C$15.2 billion deficit for 2012-13 (C$700 million below target) -- adding up to a C$4.7 billion improvement that reflects a stronger economy and expense cuts.

Ontario spent C$2.6 billion less on programs than expected this fiscal year and paid about C$400 million less interest on its debt than forecast with the help of low rates and healthy appetite for the province's bonds, the official said.

That allowed total spending to shrink to C$123 billion from an expected C$126 billion.

Duncan said last week that he has found C$1.5 billion in savings to help tame the deficit in coming years, but it won't resort to major spending cuts for fear of stalling the fragile recovery. [ID:nN24169826]

($1=$0.97 Canadian)

(Reporting by Claire Sibonney; Editing by Frank McGurty)