(Updates with USDA comment, background, details)

By Roberta Rampton

WINNIPEG, Manitoba, Sept 27 (Reuters) - Canadian veterinary officials said on Thursday they found the H7N3 strain of avian influenza on a Saskatchewan chicken farm, but noted the virus was not the deadly strain that scientists fear could cause the next flu pandemic.

"We are not dealing with the H5N1 virus that has been linked to human illness in Asia and other parts of the world," said Sandra Stephens, a veterinarian with the Canadian Food Inspection Agency.

The H7N3 strain is not normally associated with human illness, the CFIA said.

The finding had little impact on livestock and grain markets. Most Canadian poultry is produced for the domestic market, and Saskatchewan, known for its large expanses of grain fields, accounts for only a small fraction of the output.

"It is a mild strain. It doesn't appear to be a big deal," said Paul Aho, an industry consultant with Poultry Perspective.

Canada informed the World Organization for Animal Health (OIE) about the case, as well as the United States and European Union, which import some Canadian poultry products.

The U.S. Department of Agriculture said it would ban shipments of poultry from Saskatchewan, although it has not imported poultry from the province since 2005.

"We will continue to monitor the situation closely," said John Clifford, the USDA's chief veterinarian.

The H7N3 strain is routinely found in a low-pathogenic form in wild ducks in North America, said Jim Clark, a senior official with the CFIA. The disease can quickly mutate into a high-pathogenic form in commercial poultry flocks, he said.

"There is a vast and total difference between an H5 and an H7 subtype," Clark said in an interview.

The CFIA quarantined the farm, located northwest of the provincial capital of Regina, and will destroy its flock of 45,000 chickens.

The agency will investigate to see if it can find the cause of the infection, and will test birds within 10 km (6 miles) of the farm, Clark said.

There is one other commercial poultry farm within that radius and several small backyard hobby flocks, Clark said.

Canada had its first major outbreak of bird flu in 2004 in British Columbia's densely populated Fraser Valley. About 16 million poultry were destroyed to limit its spread.

A smaller outbreak was also seen in British Columbia in 2005. Canada also found a nonvirulent strain of H5 bird flu in a small backyard poultry flock in the Atlantic province of Prince Edward Island in 2006.

Bird flu almost exclusively infects birds, but it can occasionally cross over to people who closely handle infected poultry.

Canada tested more than 12,000 migratory wild birds last year as part of ongoing surveillance for highly pathogenic strains of bird flu, but has not found the H5N1 strain that experts fear could mutate enough to spread easily between people, causing a pandemic.

The H5N1 strain has been around for decades but was first seen to infect people in Hong Kong in 1997, causing the death or destruction of 1.5 million birds and sickening 18 people, killing six.

According to the World Health Organization, H5N1 flu has infected 328 people in 12 countries, and killed 200 of them. (Additional reporting by Scott Haggett, Bob Burgdorfer, Allan Dowd and Christopher Doering)

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