According to this article, external triggers for UpdatePanel do not start the associated UpdateProgress, because the implementation of the inclusion of the UpdateProgress control searches for the hierarchy control for the calling control; An external control will not be present in the control hierarchy.
The article, however, suggests introducing some JavaScript to make up for this error; I changed it (hopefully) according to your needs:
<script type="text/JavaScript" language="JavaScript"> function pageLoad() { var manager = Sys.WebForms.PageRequestManager.getInstance(); manager.add_endRequest(endRequest); manager.add_beginRequest(OnBeginRequest); } function OnBeginRequest(sender, args) { var postBackElement = args.get_postBackElement(); if (postBackElement.id == 'lstStates') { $get('UpdateProgress2').style.display = "block"; } } </script>
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