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UPDATE 1-Obama to sign order barring federal discrimination against gays

(Updates with background on order, quotes)

RANCHO MIRAGE, Calif., June 16 (Reuters) - President Barack Obama will sign an executive order barring federal contractors from discriminating on the basis of sexual orientation or gender identity, a White House official said on Monday, handing another victory to gay rights activists.

The White House has been pressing Congress to pass legislation to ban employment discrimination against lesbian, gay, bisexual and transgender people and has resisted issuing an executive order in favor of pursuing a broader, legislative solution.

But Obama has spent the year taking executive action on a host of other domestic priorities where Congress has failed to make legislative headway, and activists have pressed him to do the same on the issue of gay rights.

"Following on his pledge for this to be a year of action to expand opportunity for all Americans, the president has directed his staff to prepare for his signature an Executive Order that prohibits federal contractors from discriminating on the basis of sexual orientation or gender identity," a White House official said.

"The action would build upon existing protections, which generally prohibit federal contractors and subcontractors from discriminating in employment decisions on the basis of race, color, religion, sex, or national origin," said the official, who spoke on condition of anonymity.

Since coming into office, Obama helped end the "don't ask, don't tell" policy that prohibited gays from serving openly in the military and, after what he described as an evolution in his thinking, gave backing to gay marriage during his 2012 re-election campaign.

Pursuing the executive order is a shift for the White House, which has said since last year that such a move would carry far less weight than broader congressional action.

The Employment Non-Discrimination Act (ENDA) passed the Democratic-controlled U.S. Senate but has languished in the Republican-controlled House of Representatives.

An order barring discrimination by federal contractors would apply to about 20 percent of the U.S. workforce, according to the gay rights group Human Rights Campaign.

It would make it illegal for companies with U.S. government contracts to fire or avoid hiring employees based on sexual orientation and gender identity, just as it now is with race. Federal protections are necessary because state laws vary, activists say.

The White House official declined to say when Obama would sign the order. Obama returns to Washington on Monday after a weekend get-away in California.

"The president's intentions are clear," the official said.

The new move may energize gays and young people, two constituency groups that make up an important part of Obama's political base, ahead of congressional elections in November that could shift control of the Senate to Republicans.

Obama has been fundraising for Democrats and urging voters to show up at the polls in November for the midterm election, which typically sees lower turn out than in years with presidential races. A Republican-controlled Congress would make it more difficult for the president to pass any of his legislative agenda during his final two years in office.

The order could increase pressure on the White House to take executive action on immigration. Similar to the non-discrimination order, Obama has resisted such a move while holding out hope that the House would advance broad legislation.

(Reporting by Jeff Mason; Editing by Susan Heavey and Caren Bohan)