Lockheed Martin Commercial Space Systems had been competing against the European consortium Astrium (EADS)-Alcatel Espace and a US-Japanese consortium led by Sumitomo Corporation.

"The US group Lockheed Martin won the bid," an official from the state-owned Vietnam Posts and Telecommunications Corp (VNPT) told AFP, asking not to be named.

He said the deal would be sealed with a signature ceremony later Friday.

Details of the contract between the Vietnamese government and Lockheed were not immediately available but local papers reported it was worth 168 million dollars, short of the 180 million figure earmarked for the project by Hanoi.

"The choice of the foreign builder has been based on technology matters as well as on the price," the Vietnamese official said.

The satellite, called Vinasat and carrying up to 20 communication modules, must be launched before the second quarter of 2008 or it faces losing an orbital position booked years ago.

The ultra-sensitive project has suffered major delays over the last few years, mainly caused by difficulties in coordinating frequencies with neighbouring satellites from other countries already in orbit.

Hanoi views Vinasat as an important symbol of its sovereignty and technological ability.

The satellite is expected to be operational for 15 years and will help transmit television, radio and civil aviation signals covering remote regions of the country.

But it also has major defence implications, requiring the construction "of a terrestrial command station to serve national defence communications and Vietnamese public television," state media said last year.

The fact that Vietnam asked a US contractor to build the satellite is also symbolic of an improvement in its bilateral relations with the United States.

Last year Prime Minister Phan Van Khai made the first visit by a Vietnamese leader to Washington since the end of the Vietnam War, in 1975.

"The contract is a very strong signal that Vietnam has changed," said Alain Cany, president of the European chamber of commerce in Vietnam, who expressed his disappointment that the EU consortium had lost the bid.

"Who would have imagined few years ago that Vietnam would ask the US to carry out its satellite programme? A satellite is not trivial. It's an instrument of monitoring for national security," he said.

The deal comes as American businesses begin to enjoy widespread success in Vietnam and with political ties between the former foes on the mend.

Hanoi and Washington are trying to conclude a deal to enable Vietnam's entry to the World Trade Organization and US President George W. Bush is expected in Hanoi next November for the Asia-Pacific Economic Cooperation summit.

"There is a very strong push of American interests in Vietnam, just before the signature of the WTO deal and Bush visit," a European businessman said. "It's a good thing. European companies will however make sure fair competition and transparency are strictly respected," he added.

Last month, a few weeks after the world's biggest chipmaker Intel announced it would build a semiconductor assembly and test plant in Vietnam, Microsoft chairman Bill Gates received a rock star's welcome in Hanoi.

His visit stole the front-pages of local newspapers from the ruling communist party's five-yearly national congress.

The satellite deal might lead to similar deals in the future, analysts said.

"Clearly, this contract is a political decision showing that Vietnam wants to go further with the US," an observer said.

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