WASHINGTON - The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.

The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama's opponents, who say his spending plans are too expensive in light of budget shortfalls.

The White House took heat for sticking with its $7.108 trillion forecast earlier this year after the Congressional Budget Office forecast that deficits between 2010 and 2019 would total $9.1 trillion.

The new forecasts are based on new data that reflect how severe the economic downturn was in the late fall of last year and the winter of this year, said the administration official, who is familiar with the budget mid-session review that is slated to be released next week.

Our budget projections are now in line with the spring and summer projections that the Congressional Budget Office put out.

The White House budget office will also lower its deficit forecast for this fiscal year, which ends September 30, to $1.58 trillion from $1.84 trillion next week after removing $250 billion set aside for bank bailouts.

Record-breaking deficits have raised concerns about America's ability to finance its debt and whether the United States can maintain its top-tier AAA credit rating.

Politically, the deficit has been an albatross for Obama, a Democrat who is pushing forward with plans to overhaul the U.S. healthcare industry -- an initiative that could cost up to $1 trillion over 10 years -- and other promises, including reforming education and how the country handles energy.

DEFICIT WORRIES

Republicans have pounced on Obama for planning to spend too much when deficits are so high, and the issue is likely to loom large in next year's Congressional elections.

Obama, who has promised to halve the deficit by the end of his four-year term and likes to remind constituents he inherited a $1.3 trillion deficit from former President George W. Bush, says bringing down healthcare costs is critical to long-term deficit reduction.

Treasury markets have been worried all year about the mounting deficit. The United States relies on large foreign buyers such as China and Japan to cheaply finance its debt, and they may demand higher interest rates if they begin to doubt that the government can control its deficits.

It's one of those underlying pieces of news that is liable to haunt the bond market at some point in the future, said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco, referring to the revised 10-year deficit projection.

Many economists think it is unlikely the government can curtail spending, which means taxes would have to go up to cover the rising costs of providing retirement and healthcare benefits to aging Americans.

Higher taxes, which could slow economic growth, are also a major concern of voters on both sides of the political divide. Obama has promised not to raise taxes on Americans making less than $250,000 a year.

(Additional reporting by Butron Frierson in New York; editing by Chris Wilson)

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