NEW YORK (MarketWatch) -- Global spending on military armaments and services hit a record in 2008, driven by the U.S. wars in Iraq and Afghanistan and helped by sharp increases in Chinese and Russian defense budgets.

For 2008, countries around the world spent $1.5 trillion on weapons, vehicles and intelligence and reconnaissance services, according to a Monday report from the Stockholm International Peace Research Institute, or Sipri. The amount represented a 4% increase from 2007.

The year "saw increasing threats to security, stability and peace in nearly every corner of the globe," the Swedish group said in a statement. "The effects of the global financial crisis will be likely to exacerbate these challenges as governments and nongovernmental organizations struggle to respond effectively."

The United States accounted for about 58% of the global increase between 1999 and 2008, with spending up about $219 billion in constant 2005 prices over the period, Sipri said. At a far distance followed China and Russia, with absolute increases of $42 billion and $24 billion, respectively.

It's an environment that's been benefiting U.S. and European military contractors alike, particularly those that supply manned and unmanned aircraft, armored vehicles and surveillance and support services.

At the top of the heap was Boeing Co. BA, +3.19% , with more than $30 billion in sales for 2007, the latest year available. Following was U.K.-based BAE Systems (BA), Lockheed Martin Corp. LMT, -0.37% , Northrop Grumman Corp. NOC, -1.51% and General Dynamics Corp. GD, +0.98%

The same five companies have appeared at the top of Sipri's Top 100 list since 2002.

With the U.S. wars in Iraq and Afghanistan, sales of armored vehicles have soared, particularly for mine resistant ambush-protected vehicles, or MRAPs, that help protect soldiers against roadside bombs.

Demand for MRAPs helped Navistar International Corp. NAV, +1.53% and Force Protection Inc. FRPT, +2.00% increase their relative annual sales the most, and provided boosts to BAE Systems and General Dynamics, according to Sam Perlo-Freeman, head of Sipri's military-expenditure project.

But higher armored-vehicle sales could be a short-term trend as the war in Iraq winds down. More long term is demand for high-tech electronic and communication services, including intelligence, surveillance and reconnaissance support, as well as network security, Perlo-Freeman said.

Northrop Grumman and L-3 Communications Holdings Inc. LLL, -0.41% already have a strong presence in such services, while Boeing has been trying to aggressively break into the business, he commented in an interview.

U.S. leads global defense spending

The U.S. Defense Department led a surge in global military spending over the last decade, climbing to $607 billion in 2008 -- more than seven times the military budget of China and greater than the combined budgets of the next 14 ranking nations, according to Sipri.

China and Russia nearly tripled their military spending over the past decade as they jostle for regional influence and greater international status, said Sipri's Perlo-Freeman.

The United States accounted for about 42% of military sales in 2008, far outdistancing second-place China at $85 billion and Russia at $59 billion, the group said. China and Russia accounted for just 5.8% and 4% of world sales, respectively.

As a percentage of a country's gross domestic product, Saudi Arabia outranks every other government on spending. The Mideast nation's 2008 military budget -- which also included money for public order and safety -- represented about 9% of its GDP at $38.2 billion.

In total, military spending accounted for 2.4% of the world's GDP in 2008 with significant increases in spending for all regions, save Western and Central Europe.

"Western and Central Europe doesn't face direct military threats, while most countries, except for the U.K., have little appetite for military adventures overseas," Perlo-Freeman said. "There are concerns of terrorism, but they don't see military force as the best way to deal with it."

Germany's military budget fell 11% between 1999 and 2008 to $46.8 billion, giving it the world's sixth-largest budget. Italy's budget remained virtually flat over the same time period at $40.6 billion. Germany spent 3.2% of its GDP, while Italy devoted 2.8% of its GDP to such spending.