CN asks regulator to modify review of EJ&E deal

(In U.S. dollars unless noted)

TORONTO, Aug 15 (Reuters) - Canadian National Railway Co (CNR.TO) said on Friday it asked the U.S. Surface Transportation Board to take a new approach to its proposed takeover of Elgin, Joliet & Eastern Railway Co in hopes of securing an approval by year-end.

Canadian National's petition requests the STB review the transportation merits of the deal, but to "preserve the environmental status quo pending further STB action on the environmental issues posed by the transaction."

If approved, the decision would speed up the U.S. regulatory review that threatens to further delay the deal while allowing for environmental protection for communities along the EJ&E rail line, CN said.

CN, North America's fifth largest railway, wants to buy the 198-mile (317-km) EJ&E line for $300 million to reroute freight trains around the Chicago hub where it now faces delays due to congestion.

United States Steel Corp (X.N), which owns the small regional railway, has refused to extend the deadline for the deal into 2009, Montreal-based CN said earlier this month.

Canadian National warned it was ready to go to court if the transaction is not completed by the end of the year. However, it did not elaborate on who would be the target of the legal action.

CN's petition requests the STB decide by Sept. 15 if it will modify the procedural schedule for a final decision on the transportation merits of the deal by Oct. 15.

CN shares were off 60 Canadian cents at C$54.33 on the Toronto Stock Exchange.

($1=$1.06 Canadian) (Reporting by Ashleigh Patterson; editing by Rob Wilson)