UPDATE 7-Moody's downgrades China, warns of fading financial strength as debt mounts
* Moody's says reforms won't prevent rise in economy-wide debt
WASHINGTON President Barack Obama on Thursday scrapped a Bush-era missile defense plan for Europe that Russia had bitterly opposed and offered what he said would be faster, more flexible defense systems to protect against Iran.
In a move that could spur fears of resurgent Kremlin influence, Obama said he had approved recommendations from U.S. military leaders to shift focus to defending against Iran's short- and medium-range missiles.
"This new approach will provide capabilities sooner, build on proven systems and offer greater defenses against the threat of missile attack," Obama said, dropping plans of his White House predecessor George W. Bush for ground-based interceptors in Poland and a related radar site in the Czech Republic.
Under the new plan, the U.S. would initially deploy ships with missile interceptors and in a second phase would field land-based defense systems.
Russian President Dmitry Medvedev hailed the decision, which removed an issue clouding U.S. efforts to enlist Russian support on Afghanistan, Iran and nuclear arms control.
"We value the U.S. president's responsible approach toward implementing our agreements," Medvedev said in an address shown on national television. "I am ready to continue the dialogue."
Critics accused the White House of dangerous weakness.
Senator John McCain, the Republican presidential candidate who lost to Obama in 2008, blasted the move as "seriously misguided" and former U.S. ambassador to the United Nations John Bolton, a leading Bush-era hawk, was scathing.
"It's just unambiguously a bad decision," Bolton said. "Russia and Iran are the big winners. I just think it's a bad day for American national security."
The Bush administration had proposed the system amid concerns Iran was trying to develop nuclear warheads it could mount on long-range missiles. But Russia saw it as a threat to its own missile defenses and overall security.
Obama's move toward a more flexible shield for Europe was good news for Lockheed Martin Corp, the Pentagon's No. 1 supplier, and Raytheon Co, the world's biggest missile maker. They build much of the hardware on which the revamped approach relies. It was bad news for Boeing Co, prime contractor for the canceled installation of 10 two-stage ground-based interceptors in Poland.
THE NEW APPROACH
Outlining Obama's new approach, Defense Secretary Robert Gates said the United States would deploy Aegis-equipped ships with interceptors capable of shooting down ballistic missiles to defend both European allies and U.S. forces.
Gates said land-based defense systems would be fielded in a second phase starting in about 2015.
"Those who say we are scrapping missile defense in Europe are either misinformed or misrepresenting the reality of what we are doing," Gates said.
Signaling the administration's view it still has some breathing space, one U.S. official, speaking on condition of anonymity, said Tehran was not expected to develop long-range missile capability before 2018.
Marine Corps General James Cartwright, vice chairman of the Joint Chiefs of Staff, said the Pentagon also envisioned eventually deploying a land-based radar as part of the system which would ideally be based in the Caucasus.
Obama's plan contains elements that may still upset Moscow -- interceptor missiles could still be stationed in Poland, and also in the Czech Republic, and a radar in the Caucasus is in an area Russia sees as its sphere of influence.
But the Pentagon played down those potential concerns, saying the SM-3 missile interceptors in the new system could not be tipped with nuclear warheads and the radar would be configured only to look south toward Iran, not deep into Russia as in the Bush plan.
Analysts said investors could see some long-term trade and other benefits if the U.S. missile decision improves relations with Russia, but noted that there were also risks if Moscow ended up in taking a more assertive posture.
Lockheed Martin shares were up 4.46 percent at $79.56 on the New York Stock Exchange on Thursday. Raytheon was up 3.36 percent at $47.72 and Boeing Co was up 1 percent at $52.88.
NO QUID PRO QUO
The White House rejected Republican charges it had made a major concession to Moscow without winning anything in return. "This is not about Russia," White House spokesman Robert Gibbs said, adding there was no quid pro quo expected.
But other Democrats said they hoped for a pay-off on Iran policy where Russia is seen as a reluctant partner in efforts to end Tehran's nuclear program.
"It is time for Russia to join our push to impose stricter sanctions on Iran," Democratic Senator Charles Schumer said.
Discarding Bush's missile shield plan could also remove an obstacle to winning a deal with Russia on a replacement for a major nuclear arms reduction treaty that expires in December.
Republicans -- who hope to build momentum against Obama after a summer dominated by angry debate over his healthcare reform plan -- wasted no time assigning blame.
"The reported decision to scrap missile defense for Europe sounds dangerously like a policy of appeasement," Representative Ileana Ros-Lehtinen, the ranking Republican on the House Foreign Affairs Committee, said in a statement.
Such fears were likely to grow in eastern European states, many of which had seen the large missile plan as a symbol of U.S. commitment to the defense against any encroachment by its former Soviet rulers 20 years after the end of communist rule.
Obama informed the Czech and Polish governments of his decision just hours before the announcement, officials said. In Poland, Foreign Minister Radoslaw Sikorski said the United States would still go ahead with plans to station a battery of armed Patriot missiles on Polish soil.
Some European analysts said the U.S. move could help the traditionally pro-American region to build a more pragmatic relationship with both Washington and Moscow.
A senior Iranian government source said the move could signal a move away from what he called 'threats and confrontation' over Iran's nuclear program.
(Additional reporting by Jan Lopatka in Prague, Conor Sweeney in Moscow, Andrew Gray, Jim Wolf and Matt Spetalnick in Washington and Ross Colvin in Baghdad, Tim Hepher in Paris; Writing by Andrew Quinn; Editing by Patricia Wilson and Jackie Frank)
* Moody's says reforms won't prevent rise in economy-wide debt
KIEV, May 24 Ukraine needs more time to submit proposals for coal and gas projects to China in order to secure funding worth up to $3.65 billion as Kiev is unlikely to meet a June deadline, Deputy Prime Minister Stepan Kubiv told Reuters.
* Poland's Energy Minister Krzysztof Tchorzewski tells reporters that a proposal of Europe's No.2 copper miner, the state-run KGHM, to pay out dividend of 1 zloty ($0.2665) per share in 2017 is "optimal"