U.S. faces tough choices in cutting defense - Gates

* Says modernization vital to maintain U.S. global role

* Avoids identifying areas he thinks should be cut

* Some analysts see cuts deeper than $400 billion

By David Alexander

WASHINGTON, May 24 (Reuters) - U.S. Defense Secretary Robert Gates warned on Tuesday that policymakers would face tough choices trimming military budgets, weighing cuts in pay and benefits against delays in updating aging ships and jets.

The outgoing defense secretary, who leaves office at the end of June, did not say where he thought the Pentagon should try to cut as it seeks to meet President Barack Obama's goal of cutting $400 billion in spending over the next 12 years.

But in what he billed as his last major policy address, Gates said it was important to maintain modernization funding to replenish worn-out equipment and to develop replacements for Reagan-era weapons that today remain a mainstay of the forces.

"Unless our country's political leadership envisions a dramatically diminished global security role for the United States, it is vitally important to protect the military modernization accounts -- in absolute terms, and as a share of the defense budget," he said.

His remarks, at the American Enterprise Institute think tank, came as the Obama administration struggles to get a grip on the country's $1.4 trillion deficit and $14.3 trillion debt after 10 years of war spending and a deep recession.

Gates has initiated a review to link U.S. strategic objectives with spending so that officials will have a better idea of the risks they may incur by reducing troop levels, eliminating programs or taking other austerity actions.

Pentagon press secretary Geoff Morrell said Gates had avoided endorsing specific reductions because "he does not want to get out ahead of that (review) process and constrain the review team's thinking."

'NOT HEAVY LIFTING'

Some lawmakers and policy experts are seeking even deeper spending reductions than Obama has proposed, noting that $400 billion in cuts could largely be achieved by letting military budgets grow only at the rate of inflation for 12 years.

"This is not heavy lifting yet," said Gordon Adams, an American University professor and former senior White House budget official for national security.

"For the secretary to suggest that this is going to cause major upheaval in America's missions and commitments just isn't right. It's an overstatement."

Adams, who has suggested cutting defense budgets by $1 trillion over 10 years, said Gates's review of missions and commitments was welcome "because I think that the cuts that defense is going to go through are going to be deeper."

"While it may or may not be a trillion dollars over 10 years, chances are very good that it's going to be well above $400 billion over 12," he said.

Gates, in his most detailed comments on defense reductions so far, said cost-trimming at the Pentagon over the past few years had already eliminated the most glaring targets for cuts in weapons development programs.

"What remains are much-needed capabilities ... that our nation's civilian and military leadership deem are absolutely critical," he said.

"We must build a new (air refueling) tanker. The ones we have are twice as old as some of the pilots who fly them. We must field a next generation strike fighter -- the F-35," Gates said, referring to Lockheed Martin's next generation jet, which is over budget and behind schedule.

The defense secretary said the strategic review could require politicians to look at other uncomfortable choices, including pay levels for service members, new approaches for retirement and pensions, or higher healthcare costs for working-age retirees. (Editing by Laura MacInnis)