US, allies' share of world military spending shrinking-study

* Decline partly reflects China's growing economic weight

* US share dropping to 39 pct by 2015 from 41 pct in 2010

By Jim Wolf

WASHINGTON, July 7 (Reuters) - The share of world military spending by the United States and its closest allies is likely to plunge by 2015, but still account for nearly two-thirds of the total, a new study by a prominent research group said.

The Council on Foreign Relations' survey, distributed on Thursday, took into account outlays by the United States, NATO allies, Japan, South Korea, Israel and Saudi Arabia.

This group's combined share of global military spending fell from 77 percent in 2005 to 72 percent in 2010 and appeared set to drop to 66 percent by 2015, the researchers found.

"The U.S. and its allies retain a dominant share but it declines dramatically," Paul Swartz, the report's co-author who monitors links between international economics and military spending at the council, said in a telephone interview.

The study uses International Monetary Fund growth estimates for all countries surveyed.

Washington's share of global military spending is set to decline to about 39 percent by 2015 from 41 percent in 2010 with U.S. economic growth projected to lag that of powers such as Russia, China and India, the study showed.

Even if the United States were to keep military spending at a constant share of its own GDP, its shrinking weight in the world economy would cut its share of the global total.

China's share of world GDP is projected to jump to 11.8 percent in 2015, more than double its share in 2005, according to the IMF. The U.S. share, by contrast, is forecasted to fall to 21.1 percent from 27.7 percent in 2005.

President Barack Obama called in April for cutting projected national security spending $400 billion, by some counts about 6 percent, through 2023 as part of a deficit reduction push.

If the Obama plan is implemented, the U.S. share will fall further. And if China or some other rising power opts to make military spending a higher priority, U.S. military pre-eminence could decline even more sharply, the study showed.

Such trends have potentially significant implications for the sale of weapons made by top Pentagon suppliers such as Lockheed Martin Corp (LMT.N), Boeing Co (BA.N), Northrop Grumman Corp (NOC.N), General Dynamics (GD.N), BAE Systems Plc (BAES.L) and Raytheon Co (RTN.N) .

The cost of military hardware has grown more than inflation, the study said, such that today's spending "results in less procurement" than in the past.

It found that the United States must spend about 1 percent of its gross domestic product (GDP) on weapons just to maintain existing levels of equipment.

Post World War Two U.S. military spending as a percent of GDP has ranged from a 15 percent high in 1952 during the Korean War to a low of 3.7 percent in 2000, a period of relative calm before the Sept. 11, 2001, hijacking attacks on New York and the Pentagon. Today, it accounts for just under 6 percent, according to the study.

A decline in the U.S. share of world military spending seems likely in the absence of a new sense of insecurity, the study said.

Sebastian Mallaby, a globalization expert at the council, said in a related piece on Thursday in the Financial Times newspaper that the United States could sustain its global dominance if it has the political will to allocate a rising share of GDP to the Pentagon. (Reporting by Jim Wolf; editing by Carol Bishopric)