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STOCKHOLM, June 11 (Reuters) - Global military spending rose 3.5 percent last year to $1.2 trillion as U.S. costs for operations in Iraq and Afghanistan mounted, a European research body said on Monday in an annual study.

The United States spent $529 billion, slightly less than the entire GDP of the Netherlands, on military operations in 2006, up 5 percent over the previous year, the Stockholm International Peace Research Institute (SIPRI) said in its latest year book.

"Taking both immediate and long-term factors into account, the overall past and future costs until year 2016 to the USA for the war in Iraq have been estimated at $2,267 billion," it said.

Military spending in China, which is modernising its People's Liberation Army, climbed to an estimated $49.5 billion last year from $44.3 billion in 2005.

"China's military expenditure continued to increase rapidly, for the first time surpassing that of Japan and hence making China the biggest military spender in Asia and the fourth biggest in the world," the institute said.

The institute, which conducts independent research on international security, armaments and disarmament, said Japan cut military expenditure in 2006 for a fifth year running and was focusing its military budget primarily on missile defence.

China and Japan, Britain and France accounted for about 4 to 5 percent each of global military expenditure last year, SIPRI said. The five biggest spenders' share of global military expenses was nearly two-thirds of the total.

The United States and Russia were the largest arms suppliers in 2002 through 2006, each accounting for about 30 percent of global shipments, while deliveries from EU members made up another 20 percent, the institute said.

"Almost 50 percent more conventional weapons, by volume, were transferred internationally in 2006 than in 2002, according to data gathered by SIPRI," it added.

China and India remained the largest arms importers in the world, while five Middle Eastern countries figured among the top ten importers of arms globally.

"While much media attention was given to arms deliveries to Iran, mainly from Russia, deliveries from the USA and European countries to Israel, Saudi Arabia and the United Arab Emirates were significantly larger," the institute said.

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