UPDATE 2-Chrysler to keep 3rd shift at Ontario plant

* Union head says move will save 1,200 direct jobs

* Shift was set to be phased out in two weeks

* Company shelves plans to sell Viper business (Adds details, background, Chrysler comments, Viper news)

By John McCrank

TORONTO, July 10 (Reuters) - Chrysler has reversed a decision to cancel the third shift at its minivan plant in Windsor, Ontario, thanks to rising demand for the vehicles in the second half of the year, the company said on Friday.

The Canadian Auto Workers union said the decision to retain the shift will save 1,200 direct jobs in the southwestern Ontario city, which has been hard hit by the recession and has the highest unemployment rate of any major Canadian center at around 14 percent.

Chrysler recently emerged from Chapter 11 bankruptcy protection in the United States by selling most of its good assets to Fiat SpA (FIA.MI). It said in March it planned to cut the shift as part of an effort to restructure its operations in the face of slumping sales.

"It's great news for 1,200 CAW Local 444 members out at the Chrysler plant and obviously the spinoff jobs that come with it," CAW President Ken Lewenza said in an interview.

"Obviously, it's a strong message from Chrysler that they plan to maintain their market share lead in the minivan segment."

Reid Bigland, president and chief executive of Chrysler Canada, echoed Lewenza's comments.

"This is great news for our employees, our community and our buyers," he said in a statement.

"Demand for our minivans in the second half of 2009 has been steadily rising and this decision will allow us to meet that demand."

The plant in Windsor -- across the river from Detroit -- employs about 4,450 hourly workers and makes the Dodge Grand Caravan and Chrysler Town & Country minivans, as well as the Volkswagen Routan.

The plant is closing for two weeks as part of its regular summer shutdown, and after that it had been set to operate on only two shifts, Lewenza said.

Chrysler and the CAW agreed to a labor pact in late April that saves the company about C$240 million ($207 million) a year.

The deal cut overall labor costs of Chrysler's 8,000 unionized Canadian workers by about C$19 an hour, bringing them into line with labor costs at the Canadian plants of Toyota Motor Co (7203.T) and Honda Motor Co (7267.T).