Canada's mayors have shelved, for now, a resolution that had threatened to block U.S. companies from bidding on city contracts in response to the "Buy American" push in the United States.

Reports of progess between the U.S and Canada over the controversial provision in the U.S. stimulus package prompted the Federation of Canadian Municipalities to withdraw the threat.

"We are encouraged by the talks now underway between Canadian and U.S. officials and want to give them the time and space to reach a successful outcome," federation president Basil Stewart said Saturday.

"These talks can and should lead to a fair and mutually beneficial agreement."

The move follows a CBC News report that a deal is in the works to exempt Canada from the provision. In return, Canada would announce its provincial and municipal doors are wide open to U.S. companies.

The resolution was passed in June at the Federation of Canadian Municipalities' conference in Whistler, B.C., by a vote of 189-175.

It said the federation should support cities that adopt policies allowing them to buy only from companies whose home countries don't impose trade restrictions against Canadian goods. The action was to take effect Sunday.

Federation vice-president Berry Vrbanovic said he does not believe suspension of the deadline will remove pressure on the U.S. as the mayors are leaving the door open to reconsider it if a deal is not reached.

The "Buy American" provision gives priority to U.S. iron, steel and other manufactured goods for use in state-level and municipal public works and building projects funded with taxpayer stimulus money.

Canadian governments and businesses have railed against the policy, arguing it violates the North American Free Trade Agreement.

With files from The Canadian Press