UPDATE 3-U.S. to unveil new policy on auto fuel standards

* U.S. proposal would resolve California EPA case

* Plan would combine emissions/mileage programs

* Mileage, emissions targets would run from 2012-16 (Adds emissions, mileage goals, Boxer statement)

By John Crawley and David Alexander

WASHINGTON, May 18 (Reuters) - The White House will unveil an auto fuel efficiency proposal on Tuesday to resolve a dispute between California and the U.S. government over emissions and accelerate the timeframe for sharply improving mileage performance, industry and other sources said.

The proposal, if accepted by California and a dozen other states that want to more aggressively target greenhouse gasses, would effectively end legal and political battles with the struggling auto sector over the best way to cut fuel consumption and curtail tailpipe emissions.

It would also put more pressure on struggling U.S. automakers like General Motors Corp GM.N, Ford Motor Co (F.N) and bankrupt Chrysler LLC to accelerate development of more efficient gasoline engines, as well as new gasoline/electric hybrids and all-electric cars.

Automakers, however, are likely to support key elements of the Obama plan, industry sources said on Monday.

GM shares finished 1.1 percent higher to $1.18 on the New York Exchange while Ford shares were up less than 1 percent to $5.50.

According to people briefed on the announcement, the plan in the works for months would harmonize California's preference for curtailing emissions with the federal program that sets fuel economy standards based on vehicle weight and other attributes.

Cars and trucks must average 27.3 mpg by 2011, according to current federal regulations. Under the pending administration plan for 2012-16, annual mileage goals would top out at 42 miles per gallon (17.9 kilometres per litre) for cars and just over 26 mpg for light trucks, which include pickups, sport utilities and vans.

Vehicles would have to meet California's proposed standard of a 30 percent reduction in emissions.

Those targets are much more aggressive than the current long-range goal for the U.S. fleet to average 35 mpg by 2020, a 40 percent increase over today's performance.

Some vehicles made by Japanese automakers Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T) already meet or exceed the new goal for mileage and emissions.

Autos represent 17 percent of all man-made carbon emissions, according to EPA.

California Sen. Barbara Boxer, chairman of the Committee on Environment and Public Works, applauded the measure as good news in the fight against global warming and efforts to create jobs and reduce U.S. dependence on imported oil.