UPDATE 1-Caterpillar unit rejects CAW contract extension request

* Contract for Ontario locomotive workers ends Dec 31

* Caterpillar open to mediator, rejects extension

Dec 31 (Reuters) - Caterpillar Inc said a Canadian Auto Workers (CAW) labor contract that expires Saturday at midnight will not be extended despite the union's request for two more months of talks and a mediator.

Caterpillar's Electro-Motive Canada subsidiary has been negotiating with the CAW for a new labor contract for locomotive production workers at a plant in London, Ontario for several months, but the parties have run into a roadblock over terms. On Friday, union members authorized a strike against Caterpillar's operation if the company imposes unilateral changes.

In a statement emailed to Reuters, Caterpillar's subsidiary said it received a request for a two-month contract extension from the CAW in order to make time for mediation. Caterpillar said it already granted a six-month extention earlier in 2011 and "does not see the value of any further extension." "We hope that there will not be a work stoppage at ElectroMotive Canada in London and will continue working as long as the terms and conditions of employment remain intact," said Shannon Devine, CAW spokeswoman.

Electro-Motive is part of Caterpillar's Alabama-based Progress Rail Services division, which competes with General Electric Co and Bombardier Inc. Caterpillar said it has taken steps to ensure Electro-Motive can continue fulfilling orders regardless of what happens in negotiations with the CAW.

Electro-Motive said it "indicated to the CAW that while open to discussions with a mediator, any extension of the current collective agreement will not be considered."

The CAW has flagged two major concerns in its dealings with Caterpillar's subsidiaries.

The union has said the company wants to cut pay and benefits by more than 50 percent, and eliminate pensions. CAW officials also see Caterpillar's move to bulk up Electro-Motive operations outside of Canada as a prelude to a reduction in the Ontario operations, including a potential plant closure.

The CAW represents more than 400 workers in London, Ontario.

"Throughout this negotiation process, which began seven months ago, Electro-Motive Canada has made it clear to the CAW that the company's ability to be cost-competitive, enhance product quality and meet on-time delivery commitments is critical," the company said in a statement.

The company said Electro-Motive Canada has offered proposals since May and said the CAW has "not addressed any of the market competitive issues" it faces. The CAW has only offered "conflicting positions," including refusing any concessions and then allegedly shifting course by offering to consider some non-wage and non-benefit concessions.

The company said the CAW's "allegations of a plant closure" and suggestion that there will be replacement workers utilized are "unfounded."