MONTREAL/BELFAST (Reuters) - Stiff U.S. duties imposed on Bombardier Inc's BBDb.TO CSeries jet sparked retaliation threats from Britain and Canada's Quebec province on Wednesday as the dispute, which may affect thousands of jobs, overshadowed North American trade talks.

The U.S. Commerce Department on Tuesday slapped preliminary anti-subsidy duties of 220 percent on the jets, which could effectively shut Bombardier out of the U.S. market if upheld, after rival Boeing Co BA.N launched a trade challenge accusing Canada of unfairly subsidizing the aircraft.

The topic loomed large at North American Free Trade Agreement (NAFTA) talks in Ottawa where the countries acknowledged relations between Washington and Ottawa had become strained over the U.S. action.

Canadian Foreign Minister Chrystia Freeland said she raised the issue with U.S. Trade Representative Robert Lighthizer. He told reporters: “I’m not saying it doesn’t have an effect on relationships - it does - but not on this negotiation.”

The duties, which came on the same day Bombardier was left out of a rail tie-up, sent its shares and bond prices lower. The shares initially fell 14 percent before regaining ground to end down 7.5 percent at C$2.10. Many of its junk-rated bonds also fell, according to MarketAxess data.

“This puts a cloud over the company with regard to the CSeries,” said Bryden Teich, portfolio manager at Avenue Investment Management. “As long as there’s this uncertainty, it will affect the share price.”

The duties create "a level playing field in the aerospace market," said another rival, Brazil's Embraer EMBR3.SA, which welcomed the move.

Bombardier is a major employer in Quebec, where Prime Minister Justin Trudeau’s Liberals say they need to win extra seats in an election set for October 2019.

Quebec Premier Philippe Couillard called on Ottawa to ensure that “not a bolt, not a part, not a plane from Boeing” be allowed into Canada until the dispute had been resolved.

“Boeing may have won a battle but, let me tell you, the war is far from over. And we will win,” Couillard told reporters, describing the duties as an attack.

Boeing, in a statement, reiterated it was not attacking Canada and the issue was a commercial dispute with Bombardier.

A model of Bombardier C Series aeroplane is seen in the Bombardier offices in Belfast, Northern Ireland September 26, 2017. REUTERS/Clodagh Kilcoyne

In Ottawa, Trudeau said the government was “disappointed and ... will continue to fight for good Canadian jobs.” He has previously said Canada will not go ahead with plans to buy 18 Boeing F-18 Super Hornet fighter jets unless the challenge is dropped.

Canadian Trade Minister Francois-Philippe Champagne described it as a deplorable decision and one which shows that Boeing is not a “trustworthy partner.”

“Our message to the Americans is to tell them that this decision will also have an impact on American suppliers and jobs in the United States,” he added.

BROADENING TRADE BATTLE

The Boeing-Bombardier spat has snowballed into a bigger trade battle. Bombardier is a major employer in Northern Ireland, where a handful of legislators is keeping British Prime Minister Theresa May’s minority Conservative government in power.

Britain told Boeing on Wednesday that it could lose out on British defense contracts because of the dispute. May said in a tweet that she was “bitterly disappointed” by the ruling.

Boeing said it was committed to Britain.

The duties on Bombardier mark the second U.S. trade action against Canadian companies since President Donald Trump took office. Earlier this year, the United States imposed preliminary anti-subsidy duties on Canadian softwood lumber.

Boeing launched its challenge in April, alleging Bombardier had dumped airliners on the U.S. market when it struck a deal for 75 CSeries planes with Delta Air Lines Inc DAL.N.

Delta’s CEO on Wednesday said Boeing’s challenge was “absurd” and predicted the duties would not be made permanent when Commerce reaches a final decision next year.

Bombardier, which considered bankruptcy in 2015 and is undertaking a five-year plan to improve performance and margins, is still grappling with nearly $9 billion in debt.

The company also got snubbed by Siemens AG SIEGn.DE on Tuesday, which opted to merge with France's Alstom instead.

Bombardier may need to raise more equity to support a capital-intensive business, according to Lorne Steinberg, president of Lorne Steinberg Wealth Management Inc in Montreal.