Rio Tinto to increase share buybacks by $2.5 billion

LONDON/MELBOURNE (Reuters) - Flush with cash, Rio Tinto said it would buy back an additional $2.5 billion worth of its shares, dishing out the proceeds from a sale of coal assets earlier than some had expected.

The action raises the world no.2 miner's total buybacks this year to $4 billion following announcements in February and August, as miners benefit from recovering prices and costs reduced by years of cutbacks. Investors have been pressing for greater returns.

"It's not a surprise, but it's probably a bit earlier than people factored in," said James Eginton, an analyst at Tribeca Investment Partners, a Rio Tinto shareholder.

Rio's Australian shares rose 1.4 percent on Friday, outpacing gains in rival BHP Billiton .

Rio shareholders approved the sale of a number of Australian coal interests to China-backed Yancoal Australia for $2.69 billion in June and some shareholders at the time called for the money to be used to increase dividends or buy back shares.

The company is seen in the strongest position among the world's biggest miners, carrying little debt and raking in cash from its low-cost iron ore operations and possibly more asset sales.

"Next year capital returns are probably going to step up," Eginton said.

Rio paid its highest interim dividend in August after first-half profit more than doubled.

(Reporting by Zandi Shabalala and Sonali Paul; Editing by Richard Pullin)