U.S. defense budget sees modest increase despite hawkish rhetoric

(Adds OCO figures in paragraphs 12, 13 and comment from U.S. official)

By Mike Stone

WASHINGTON, May 23 (Reuters) - While U.S. President Donald Trump's budget proposal for national defense increases spending, it falls short of campaign promises to rebuild the U.S. Navy and a "historic" increase in military spending.

The budget proposes a modest increase in military spending. Trump is seeking a $52 billion hike for the Pentagon as part of an overall defense spending increase of $54 billion. That is almost 10 percent higher than current budget caps, but only 3 percent more than what former President Barack Obama had sought in his long-term budget plan.

The $603 billion includes funding for nuclear weapons programs at the Department of Energy and other national defense programs as well as the Department of Defense.

The Pentagon's specific defense request is for $574.5 billion, an increase of 4.6 percent compared to the budget for fiscal year 2017.

At the direction of Defense Secretary James Mattis, the Pentagon is carrying out a broad budget and strategy review and experts said this budget is more of a placeholder until that is complete.

"It feels to me like the Trump administration just doesn't really have it all together at this point," said Laicie Heeley, a fellow at the Stimson Center.

"I think it would be really hard for them to ask for massive increases over Obama's planned budget at this point because they just don't have the strategic rationale in place. That doesn't mean that Congress isn't going to take it and ask for more," Heeley said.

The budget request must be passed by the U.S. Congress but faces skeptical lawmakers. U.S. officials said the focus of the budget proposal was to improve readiness.

U.S. Senator John McCain, one of the leading military and foreign policy voices in Congress, said on Tuesday that the White House's budget proposal was "inadequate," and "dead on arrival" in Congress.

McCain has been a proponent of increasing defense spending to above $640 billion in order to renew the military and invest in modern capabilities.

"Obviously it is going to take a lot in Congress, in both the House and Senate, to try to get it done and we are here to help in any way we can. We will make our case," Acting Comptroller John Roth told reporters.

The proposal includes an additional $65 billion in Overseas (Tel Aviv: OVRS.TA - news) Contingency Operations (OCO) money, which is intended to fund ongoing wars and does not count against the budget caps.

The fiscal 2018 budget proposal's OCO funding includes $46 billion for operations in Afghanistan, but is based on current U.S. troops levels at about 8,400. The Trump administration is weighing sending between 3,000 and 5,000 additional U.S. and coalition troops to the war-torn country to stem gains made by Taliban militants.

The OCO fund also includes $13 billion for the fight against Islamic State militants in Iraq and Syria and $4.8 billion for the European Reassurance Initiative, which is an increase of about $1.4 billion from the 2017 request. (Additional reporting Idrees Ali; Editing by Andrea Ricci and Chizu Nomiyama)