UPDATE 1-Obama budget eyes boost to cybersecurity funds

(Recasts first paragraph; adds background and list of companies involved in cybersecurity market)

By Andrea Shalal-Esa

WASHINGTON Feb 26 (Reuters) - The budget proposed by President Barack Obama includes substantial funding aimed at improving the security of U.S. private and public computer networks, fueling a growing market for U.S. defense and information technology contractors.

"The threat to federal information technology networks is real, serious and growing," said an outline of the budget proposal released by the Obama administration on Thursday for fiscal 2010, which begins Oct. 1.

Government officials and private companies have grown increasingly concerned about attacks or disruptions to the computer networks that are so central to the U.S. economy, prompting Obama to order a 60-day review of cybersecurity initiatives across the government.

A two-day "cyberwar" simulation conducted in December found the United States unprepared for a major hostile attack against its computer networks, government and industry officials said.

Thursday's budget overview proposes $355 million in funding for the Department of Homeland Security to make private- and public-sector cyber infrastructure more resilient and secure.

The money would help support the operations of the National Cyber Security Division and efforts under the Comprehensive National Cybersecurity Initiative, according to the document.

In addition, the administration said it would put "substantial" funding for cybersecurity efforts into the national intelligence program, but gave no details since that funding is kept secret.

That money would be used for "an integrated and holistic approach to address current cybersecurity threats, anticipate future threats, and continue innovative public-private partnerships," the budget overview said.

Some of that funding will flow to the National Security Agency, the government agency responsible for codebreaking and electronic spying.

Adm. Dennis Blair, director of national intelligence, told Congress on Wednesday that the NSA, which ran the Bush administration's secret program of warrantless electronic eavesdropping, would assume a greater role in cybersecurity.

Industry executives and analysts say the cybersecurity market will be a fast-growing area in coming years and could generate more than $10 billion in contracts by 2013.

Defense contractors Northrop Grumman Corp (NOC.N), Lockheed Martin Corp (LMT.N), Boeing Co (BA.N), and General Dynamics Corp (GD.N) are all working on cybersecurity projects for the U.S. government and could benefit from increased funding.

Details about the extent of their current contracts are sketchy, since many of the projects are classified.

Information technology companies such as ManTech International Corp (MANT.O), CACI International Inc CAI.N, NCI Inc (NCIT.O) and Science Applications International Corp [SAICI.UL] are also are likely to play a major role in the growing market. (Reporting by Andrea Shalal-Esa, Editing by Tim Dobbyn and Lisa Von Ahn)