U.S. arms-makers may gain on North Korea fears

WASHINGTON, June 19 (Reuters) Top U.S. defense contractors may be big beneficiaries of reports North Korea has fueled a missile capable of reaching Alaska for a test launch.

If Pyongyang were to conduct its first such test in eight years, ''we believe that several countries in the region may speed up their procurement of missile defense equipment,'' Robert Stallard, a Bank of America analyst, said in a note to investors today.

Boeing Co is the primary contractor for the ground- based leg of a multibillion-dollar U.S. effort to build a layered defense against ballistic missiles that could be tipped with nuclear, chemical or germ warheads.

Other biggest missile defense contractors are Lockheed Martin Corp., Northrop Grumman Corp. and Raytheon Co..

A test-launch of an intercontinental ballistic missile would end a moratorium Pyongyang declared after its last test, which sent a multistage missile over Japan on Aug. 31, 1998.

Since then, Pentagon spending on missile defenses has risen to 10 billion dollars a year on all aspects of missile defense, including shipped-based interceptor missiles built by Raytheon and an airborne laser being developed by Boeing.

The United States and Japan, the top U.S. partner in a growing web of missile-defense projects, warned North Korea over the weekend against the launch of what appears to be a Taepodong-2 missile with a possible range of up to 2,670 miles.

Jim McAleese, an arms consultant in McLean, Va, forecast a North Korean missile launch would lead to a stepped-up testing schedule for the fledgling U.S. bulwark of interceptor missiles, advanced radar stations and data relays. The Pentagon's Missile Defense Agency ''will be writing checks faster to the contractors,'' he said in an interview.

The State Department said on Friday the United States would take ''necessary preparatory steps to track any potential activities and to protect ourselves.'' Loren Thompson of the Lexington Institute, an Arlington, Va. research group, said a test-firing would put pressure on President George W. Bush to take more forceful action.

''If North Korea were a normal country, we might have to live with this threat,'' he said. ''But many policymakers will worry that they are too dangerous and too unpredictable to trust with such destructive technology.

''Missile defense systems sometimes fail,'' Thompson added.

''But bombs almost never do.'' Joel Johnson, an expert on the international defense trade at Teal Group, a Fairfax, Va. consulting firm, said North Korea was a reminder the United States still faced threats that could require fighter jets, bombers, aerial-refueling tankers and aircraft carriers. That could play into congressional debates on issues such as how quickly the United States needs to buy new tankers and create a new long-range bombing capability, he said.

The potential extra business is good news for U.S. defense contractors, who saw a steady rise in their share price during the first quarter of 2006. The Amex Defense Index .DFII> has largely outperformed the Dow Jones Industrial Average .DJI> this year.

REUTERS MP PC2322