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BRUSSELS (Reuters) - The European Commission said on Monday it still had confidence in its plans to build a rival to the U.S. satellite navigation system despite a problem with the latest launch of satellites for the network.

Space transport company Arianespace launched two satellites for Europe's Galileo system aboard a Russian Soyuz rocket from French Guiana on Friday but they were put into the wrong orbit, calling into question their usefulness for the Galileo system.

It is the latest setback to Galileo, which has been beset by delays, financing problems and questions over whether Europe really needs its own Global Positioning System.

The EU has approved a 7 billion-euro budget for Galileo and another navigation project between now and 2020. It says Galileo will strengthen Europe's position in a satellite-navigation market expected to be worth 237 billion euros in 2020.

The European Commission said on Monday it had asked Arianespace and the European Space Agency (ESA) for details of the incident along with a schedule and a plan to rectify the problem. Early information from Arianespace indicate the problem involved the upper stage of the launcher, it said.

"The European Commission will participate in an inquiry with ESA to understand the causes of the incident ... " European Industry Commissioner Ferdinando Nelli Feroci said in a statement. "I remain convinced of the strategic importance of Galileo and I am confident that the deployment of the constellation of satellites will continue as planned."

A board of inquiry looking into the problem is expected to give preliminary results in the first half of September.

The European Space Agency has control of the two satellites, but they probably cannot be moved into the right orbit. They still might contribute to the Galileo system, with reduced effectiveness, a Commission source said.

The EU's use of a Russian rocket to put the satellites into orbit comes as conflict in Ukraine has strained EU-Russian relations. But EU officials said Arianespace simply selected the rocket best suited to the job.

An Arianespace spokesman said the satellites were not guaranteed and the company was not liable to pay compensation to the European Commission for the mishap.

Arianespace uses Soyuz instead of the European Ariane 5 rocket for Galileo because Ariane 5 is much more powerful than the launch needed. Soyuz is the right size and can carry two satellites at once, the spokesman said.

“Using Ariane 5 would be the same as using a truck to carry two suitcases,” he said.

(Reporting by Adrian Croft in Brussels and Cyril Altmeyer in Paris; Editing by Larry King)

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