Defense stocks end week up as uncertainty lifts

By Karen Jacobs

ATLANTA, April 9 (Reuters) - The stocks of U.S. defense contractors, which have been in a slump in recent weeks, gained new life this week as budget proposals from the Pentagon helped remove some uncertainty about weapons programs.

As of Thursday's market close, the Standard & Poor's Aerospace and Defense Index .GSPAERO was up 4.7 percent on the week.

Leading defense companies also rose in the holiday- shortened week. Lockheed Martin Corp (LMT.N) and Northrop Grumman Corp (NOC.N) shares gained 9 percent and 2 percent, respectively, while General Dynamics Corp (GD.N) gained 5 percent.

The defense budget proposals were announced on Monday.

"Most of the defense stocks had been discounted by virtue of people expecting (program) cuts," Wayne Plucker, senior aerospace and defense industry analyst at research firm Frost & Sullivan, said this week.

While U.S. Defense Secretary Robert Gates unveiled plans to trim missile defense spending and end or scale back some weapons programs, "the choices he made were sort of what we expected," Plucker added.

The recommendations from Gates must still become part of Obama's formal budget submission to Congress and lawmakers will have the last say on spending.

Robert Stallard, an analyst with Macquarie Research, said the sector sell-off ahead of the budget proposals may have been excessive. Despite this week's gain, the S&P aerospace and defense index has fallen 11 percent so far this year.