UPDATE 1-U.S. Steel lets Cleveland-Cliffs into its sale process -source

(Recasts with U.S. Steel allowing Cleveland-Cliffs into its sale process, adds details throughout)

By Greg Roumeliotis

Sept 28 (Reuters) - U.S. Steel Corp has allowed Cleveland-Cliffs to participate in its sale process after agreeing to the terms of a nondisclosure agreement (NDA), a person familiar with the matter said on Thursday.

Reuters reported last week that a disagreement over the NDA had kept Cliffs out of a bidding process that U.S. Steel announced on Aug. 13. U.S. Steel had failed to convince Cliffs to sign a six-month standstill agreement that would prevent the latter from challenging U.S. Steel's board of directors.

Cliffs and U.S. Steel have now agreed to an NDA that comes with a two-month standstill, the source said. Reuters has reported that Cliffs has secured bank financing for its bid that is not subject to due diligence. Signing the NDA, however, will give Cliffs, whose previous $7.1 billion cash-and-stock offer for U.S. Steel was rebuffed, visibility into the bidding process.

The source requested anonymity because the matter is confidential. U.S. Steel and Cliffs did not immediately respond to requests for comment. CNBC first reported on the NDA earlier on Thursday.

Reuters has reported that ArcelorMittal is one of the parties that has been working on a potential bid for U.S. Steel. Bloomberg News has also reported that Canadian steelmaker Stelco Holdings is pursuing a bid for U.S. Steel, though it is unclear how a company with a C$2 billion market value ($1.5 billion) would find the resources to compete.

Cliffs would rank among the world's top 10 steel producers, which are mostly in Asia, should its bid for U.S. Steel succeed. Cliffs' commitment to keeping U.S. Steel's blast furnaces running has won it the support of the United Steelworkers union. The group's workers at U.S. Steel have said they will support only Cliffs as an acquirer.

Cliffs CEO Lourenco Goncalves has said in interviews and earnings calls that criticism of blast furnaces' carbon emissions ignores that electric arc furnaces cannot make the steel many car makers want. U.S. Steel has been gradually transitioning to electric arc furnaces, which are less costly to run and more environmentally friendly.

U.S. Steel earlier this month forecast third-quarter profit above Wall Street estimates and said each of its segments outperformed prior expectations, driven by a decline in raw material costs and higher prices for flat-rolled products. It said its forecast included the projected impact from the United Auto Workers (UAW) strike, which has weighed on both U.S. Steel and Cliffs given that car makers are major customers. (Reporting by Greg Roumeliotis in New York Additional reporting by Priyamvada C in Bangalore Editing by Matthew Lewis)