STOCKHOLM - World governments spent a record US$1.46 trillion on upgrading their armed forces last year despite the economic downturn, with China climbing to second place behind top military spender the United States, a Swedish research group said Monday.

Global military spending was four per cent higher than in 2007 and up 45 per cent from a decade ago, the Stockholm International Peace Research Institute, or SIPRI, said in its annual report.

"So far the global arms industry, booming from the wars in Iraq and Afghanistan and from spending increases by many developing countries, has shown few signs of suffering from the crisis," SIPRI said.

However, the report added that arms companies may face reduced demand if governments cut future military spending in response to rising budget deficits. It also noted U.S. arms purchases - by far the highest in the world - were expected to rise less rapidly under President Barack Obama after sharp growth during the Bush administration.

U.S. military spending increased nearly 10 per cent in 2008 to $607 billion and accounted for about 42 per cent of global arms spending, SIPRI said.

The U.S. was followed for the first time by China, which increased its military spending by 10 per cent to an estimated $84.9 billion, SIPRI said. The report noted that China's military spending is hard to pinpoint because the official defence budget is deemed considerably lower than actual spending by western defence analysts.

SIPRI researcher Sam Perlo-Freeman said China's increased spending doesn't make it the world's second strongest military power "because a lot of other countries have been at this game for a lot longer than China."

"While they are certainly seeking to increase their regional and global influence ... there is very little evidence of any hostile intent in terms of the region," he added.

The report said China was seeking to equip its armed forces for modern warfare involving the use of precision weapons and high-tech information and communications technology.

France narrowly overtook Britain - last year's No. 2 - for third place and Russia climbed to fifth place from seventh in 2007, according to the report.

SIPRI said U.S. arms spending increased by 71 per cent during George W. Bush's presidency, and "clearly made a significant contribution" to increasing the U.S. budget deficit.

It said the election of Obama gave hope for a sound exit from Iraq, stabilization in Afghanistan, and changes in the way that the U.S. engages with the international community. However, it warned expectations on Obama may be too high, especially when it comes to Afghanistan.

"Regrettably, Afghanistan's fate over the next few years still looks to be finely balanced. Progress will continue to be slow, flawed and fragile," the report said.

SIPRI estimated that there are 8,400 operational nuclear warheads in the world, 2,000 of which are kept on high alert and capable of being launched in minutes. The total number was down from 10,200 a year earlier, primarily due the quick withdrawal of warheads by Russia and the United States under limits set by bilateral treaties, the report said.

Counting spare warheads, those in storage and those due for dismantlement, there are about 23,300 nuclear weapons held by eight countries - the United States, Russia, China, Britain, France, India, Pakistan and Israel - SIPRI said.


Associated Press Writer Karl Ritter contributed to this report.


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