UPDATE 2-Connacher shelves Montana refinery expansion

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CALGARY, Alberta, Oct 6 (Reuters) - Connacher Oil & Gas Ltd (CLL.TO: Quote, Profile, Research, Stock Buzz) said on Monday it is shelving a planned expansion of its Montana refinery in order to concentrate on boosting output from its Canadian oil sands holdings.

Connacher, one of the smallest oil sands producers, has abandoned a scheme to raise capacity at its Great Falls, Montana, refinery to 35,000 barrels a day from 9,500.

"The project will be shelved and not brought forward to Connacher's board of directors in the foreseeable future," the company said in a statement.

Connacher bought the refinery in 2006 to process bitumen from its thermal oil sands projects. However it said that increased pipeline access to the United States and more upgrading capacity in Canada had cut the discount on heavy oil and tar-like bitumen compared with lighter oil, reducing the need to refine its output.

Connacher's shares fell 28 Canadian cents, or nearly 12 percent, to C$2.10 on Monday on the Toronto Stock Exchange amid a broad selloff on world equity markets. The stock has dropped 47 percent over the past 12 months. ($1=$1.10 Canadian) (Reporting by Scott Haggett; editing by Rob Wilson)