UPDATE 2-Obama seeks US FDA budget hike, generic drug fees

* Proposal calls for FDA budget topping $3 bln

* Seeks funds to get cheaper medications to market (Adds background, DeLauro comment, details of budget proposal)

By Susan Heavey and Lisa Richwine

WASHINGTON, May 7 (Reuters) - President Barack Obama proposed on Thursday a 19 percent hike in the Food and Drug Administration's budget to strengthen inspections and increase the number of generic drugs on the U.S. market.

The increase would give the FDA $3.2 billion in fiscal year 2010, which starts Oct. 1, compared with $2.7 billion in 2009.

The FDA regulates products that make up about one-quarter of the U.S. economy and also deals with food safety issues, tainted drugs and drug side effects.

It has been stretched because of increased responsibilities, outdated technology and not enough staff.

Obama's plan must now be considered by Congress, which has increased funding in recent months while insisting that the FDA do a better job of protecting the public.

Nearly $260 million of the budget would go toward regulating the U.S. food supply.