Bush signs spy bill and draws lawsuit

WASHINGTON (Reuters) - President George W. Bush signed a law on Thursday overhauling the rules for eavesdropping on terrorism suspects but immediately met a civil liberties challenge calling it a threat to Americans' privacy.

"This law will protect the liberties of our citizens while maintaining the vital flow of intelligence," Bush said at a White House ceremony to mark a rare legislative victory for the president during his last year in office.

The American Civil Liberties Union filed suit in Manhattan federal court as Bush signed the measure and called for the law to be voided as a violation of constitutional speech and privacy protections.

"Spying on Americans without warrants or judicial approval is an abuse of government power, and that's exactly what this law allows," ACLU Executive Director Anthony Romero said in announcing the suit.

The action was filed on behalf of human-rights groups, journalists, labor organizations and others who say they fear the law will allow the U.S. government to monitor their activities, including compiling of critical reports on the United States.

Bush quickly signed the bill a day after Congress gave it final approval, with Democratic presidential candidate Sen. Barack Obama dropping earlier opposition to vote for passage. Obama's Republican rival, Sen. John McCain, has supported the bill but was absent for Wednesday's vote.

The bill authorizes U.S. intelligence agencies to eavesdrop without court approval on foreign targets believed to be outside the United States.

The administration says the measure will allow it to swiftly track terrorists. But the suit charges the law permits warrantless surveillance of phone calls and e-mails of U.S. citizens who may have legal and legitimate reasons for contacting people targeted by government spying.

The bill seeks to minimize such eavesdropping on Americans, but the suit says the safeguards are inadequate.

The law lets government "conduct intrusive surveillance without ever telling a court who it intends to surveil, what phone lines and e-mail addresses it intends to monitor, where its surveillance targets are located, or why it's conducting the surveillance," said ACLU national security director Jameel Jaffer, the lead attorney in the suit.

The most contentious issue in negotiations over the bill was a provision that grants liability protection to telecommunication companies that took part in a warrantless domestic spying program Bush began after the September 11 attacks.

The law shields those firms from billions of dollars in potential damages from privacy lawsuits.

McCain criticized Obama's vote in favor of the law as an inconsistency, and ACLU Legislative Director Caroline Fredrickson called it "very disappointing."

The Democrat's campaign had earlier said he would support efforts to block legislation with a telecommunications immunity provision, but Obama voted for the overall bill Bush signed after casting a losing vote to strip the immunity provision.

"Given the choice between voting for an improved yet imperfect bill, and losing important surveillance tools, I've chosen to support the current compromise," Obama said on his campaign Web site.

(Additional reporting by Edith Honan in New York; Editing by David Alexander and David Wiessler)