RPT-UPDATE 1-Canada sets C$35 bln naval shipbuilding strategy

(Refiles to broaden distribution)

* One yard to build combat ships, one to build noncombat

* Ottawa says contracts will be signed in two years

* Opponents say plan will pit East yards against West (Recasts, adds reaction, background)

By Allan Dowd

VANCOUVER, June 3 (Reuters) - Canada unveiled a new strategy for rebuilding its aging Navy and Coast Guard fleets on Thursday, saying it would split the construction of major combat and noncombat vessels between two shipyards.

Ottawa expects to spend C$35 billion ($33.6 billion) over the next three decades building both large and small ships, according to Defence Minister Peter MacKay, though specific spending details were not given.

The Conservative government said the new shipbuilding strategy would provide stability for the domestic shipbuilding industry, whose fortunes have been in decline in recent years, and help revitalize the NATO country's aging fleet.

The program is expected to build 28 major vessels, and 100 smaller once for the Navy and Coast Guard for use defending the country's Pacific, Atlantic and Arctic coasts, MacKay said.

"We expect to have signed agreements with these shipyards within two years, which will clear the way for large vessel contracts that the Navy desperately needs," MacKay said at an announcement ceremony in Ottawa.

Canada has major shipyards in Quebec, Nova Scotia and British Columbia. Of the two shipyards selected to build major vessels, one would be responsible for noncombat vessels and the other for combat ships.

Contracts for smaller vessels will be tendered on a competitive bidding basis, while contracts for rebuilding current ships will continue to be bid on competitively under existing rules.

The opposition Liberals said the plan failed to provide infrastructure funds needed by the industry now, and would pit East and West Coast yards against each other instead of strengthening both regions.

The Liberals also accused the Conservatives of foot-dragging on ship replacement, noting that the government announced plans for new Arctic patrol vessels in 2007 but has never awarded a contract to build them.

The Canadian Navy, which is celebrating its centennial this year, has 33 warships, some of which have been in service since the early 1970s.

The country's major shipbuilders include Davie Yards in Levis, Quebec, Irving Shipbuilding in Nova Scotia and the Washington Marine Group's shipyards in British Columbia. Davie Yards is currently under court protection from creditors.

($1=$1.04 Canadian) (Reporting Allan Dowd; editing by Rob Wilson)