July 28 (Bloomberg) -- The U.S. military said it's reconsidering its plan for a worldwide on-line futures market to help it predict events in the Middle East.

A statement issued late today said the Pentagon ``will continue to reevaluate the technical promise of the program before committing additional funds beyond fiscal year 2003.''

Just hours earlier, two Democratic U.S. senators held a press conference to demand cancellation of the project, which would allow traders to bet on the likelihood of events ranging from the overthrow of a government to the collapse of an economy or the assassination of Palestinian leader Yasser Arafat.

``Clearly, this is morally wrong,'' Oregon Senator Ron Wyden said on Capitol Hill in Washington. Senator Byron Dorgan of North Dakota called it ``the most Byzantine thing I have ever seen proposed by a federal agency.''

The Pentagon requested $3 million for the project in its fiscal 2004 budget. The Senate said no; the House said yes. The budget is now before a conference committee of both chambers. If the Pentagon doesn't end the project, ``we have to find a way in conference,'' Dorgan said. ``This is a hare-brained scheme.''

The Policy Analysis Market is part of a Pentagon effort to anticipate terrorist attacks. The market's Web site says traders can register starting August 1 with trading to begin Oct. 1.

`Small Research Program'

The market is to be managed by the Pentagon's Defense Advanced Research Projects Agency, or DARPA. DARPA spokesman John Jennings said the agency was caught off-guard by the senators'' press conference.

DARPA's ``statement regarding the future'' of the program said there still are ``a number of major technical challenges and uncertainties'' facing this ``small research program.''

``Chief among these are: Can the market survive and will people continue to participate when U.S. authorities use it to prevent terrorist attacks? Can futures markets be manipulated by adversaries?'' it said in its four-paragraph statement.

The Pentagon planned to ask for $5 million for the program in fiscal 2005 on top of the $3 million requested in fiscal 2004. The statement left unclear whether any of this money is still sought, and a phone call to Jennings for clarification was not immediately returned.

`How Would You Feel?'

Wyden and Dorgan said the market was a terrible idea.

``How would you feel if you were the king of Jordan and learned that the U.S. Department of Defense was creating a futures market in whether you're going to be overthrown,'' said Dorgan, a member of the Senate Appropriations Committee.

The Web site for the Policy Analysis Market cites ``Overthrow of Jordanian Monarchy'' as an example of the sort of event traders might speculate on. Others include Arafat's assassination and the likelihood of a North Korea missile attack on the U.S.

``PAM will focus on the economic, civil, and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey and the impact of U.S. involvement with each,'' according to the ``Concept Overview'' on its Web site.

``The issues represented by PAM contracts may be interrelated'' and traders can ``structure combinations of futures contracts,'' it says. The market ``will be active and accessible 24/7 and should prove as engaging as it is informative.''

Dorgan didn't see it that way. ``Futures markets almost always relate to a commodity in this country,'' he said. ``There's not a commodity here. It's wagering.''

Wyden, a member of the Senate Intelligence Committee, was scornful of the project.

``They have this notion about the predictive capabilities of intelligence,'' he said. ``We think it's absurd; we think when you look at what happened in 9/11. You ought to go on the basis of real evidence from the real world. They have these ideas about markets and predictive capabilities which are more of fantasy land.''

Last Updated: July 28, 2003 17:44 EDT