BRASILIA, July 10 (Reuters) - Brazil will invest $500 million to revive a long-stalled navy project to build a nuclear-propelled submarine, President Luiz Inacio Lula da Silva said on Tuesday.

"We are going to apply the necessary resources to conclude this project," Lula said at a nuclear research facility in Sao Paulo state.

The project requires 1 billion reais ($500 million) invested over eight years, he said.

A nuclear-powered submarine could patrol the vast waters off Brazil's coastline more effectively, Navy Commander Adm. Julio Soares de Moura has said. Brazil has five conventional submarines.

The navy would use French or German technology for building large powerful submarines and develop a small Brazilian-made nuclear reactor to power the craft, Moura has said.

Lula has publicly defended nuclear energy as a solution to power shortages that could hit Brazil as early as 2009.

"Brazil can afford the luxury of becoming one of the few countries in the world to master the entire uranium enrichment cycle and, from there, I think we will be much more esteemed as a nation," he said on Tuesday.

Brazil developed technology for partially enriching uranium during a military dictatorship that ruled from 1964 to 1985.

But a post-military civilian government agreed to abandon nuclear research in 1991. Brazil does not produce weapons-grade uranium and sends partially enriched uranium abroad for further processing to make nuclear fuel.

With some of the world's largest uranium reserves, Brazil could save money by fully enriching fuel-grade uranium at home.

In June, the government's energy council revived a plan to build the country's third nuclear power reactor along the coast near Rio de Janeiro. The reactor, Angra III, has been on hold for two decades.

The energy minister said at the time that building a third reactor would increase demand for nuclear fuel, making it more cost-effective to enrich uranium in Brazil.

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