UPDATE 2-Quebec to provide loan guarantee to AbitibiBowater

(Updates with U.S. court action, complaint from U.S. lumber group; in U.S. dollars unless noted)

TORONTO, April 17 (Reuters) - The Canadian province of Quebec agreed on Friday to provide a $100 million loan guarantee to AbitibiBowater Inc (ABWTQ.PK) as the newsprint maker attempts to restructure its operations under bankruptcy protection in Canada and the United States.

The forestry firm, headquartered in Montreal but incorporated in the United States, also won approval from a U.S. judge on Friday for $206 million in financing for its Bowater unit to help it get through its Chapter 11 bankruptcy proceedings there.

The judge's interim order approving the financing, known as debtor-in-possession or DIP funding, clears the way for the company to use the funds provided by Fairfax Financial Holdings Ltd. (FFH.TO) and Avenue Investments LP for its working capital.

AbitibiBowater, which has significant operations in Quebec, is also seeking a $100 million in a DIP loan for its Abitibi-Consolidated unit, and the Quebec government will act as a guarantor for the DIP financing once the company has arranged the loan.

AbitibiBowater, North America's largest newsprint maker, filed for bankruptcy protection in the United States on Thursday as it failed to secure lender support for its restructuring plan.

"AbitibiBowater and its employees appreciate the confidence in our restructuring initiatives and the ongoing demonstration of support and collaboration shown by Investissement Quebec and the Quebec government," Chief Executive David Paterson said in a statement.

Investissement Quebec is the province's investment agency.

AbitibiBowater employs more than 14,000 people, with more than 10,000 of them based in Canada. Of these about 7,500 are in Quebec.

But the Canadian aid plan drew immediately fire from a group of U.S. lumber producers, who said it was a subsidy that violated the 2006 U.S.-Canada softwood lumber trade agreement. The company also produces lumber, mostly in Canada.

"As scores of U.S. sawmills close and workers lose their jobs, we will not stand for this type of artificial intervention in the market," said Steve Swanson, chairman of the Coalition for Fair Lumber Imports.

AbitibiBowater's main Canadian union has repeatedly called on Canada's federal government to come to the aid of the forest products sector, which has been hurt badly by declining North American paper demand, a collapse in the U.S. housing construction market and the overall slowdown in the global economy.

The Communications, Energy and Paperworkers Union of Canada has accused Ottawa of paying scant attention to the woes of the forestry sector, even though the industry employs about twice as many people as Canada's auto industry.

In a statement, the government of Quebec said it "hopes to see the federal government join its effort."

AbitibiBowater also confirmed it would press ahead with plan to sell its 60 percent interest in the Manicouagan hydroelectric power plant to provincially owned Hydro-Quebec, for gross proceeds of C$615 million ($508 million).

($1=$1.21 Canadian) (Reporting by Euan Rocha, Allan Dowd and Tom Hals; editing by Rob Wilson)