Rio Tinto lifts iron ore output to record as ore prices see-saw

* Rio Tinto (Xetra: 855018 - news) iron ore output rises 12 pct in Q3

* Says on target to hit 2014 target of 295 mln tonnes

* Iron ore prices stage a recovery (Adds details, analyst comment, iron ore prices)

By James Regan

SYDNEY, Oct 15 (Reuters) - The world's No. 2 iron ore miner Rio Tinto said a strong third quarter and productivity gains led to a 12 percent rise in iron ore production as price volatility persists in the global market.

Rio Tinto, which competes with Vale and BHP Billiton in the seaborne-traded iron ore market, confirmed its target of mining 295 million tonnes of the steel-making material in 2014, up from 266 million last year.

From Europe to Australia, smaller, less efficient miners are in many case struggling to survive, while the mega miners, take a bigger share of the $130 billion seaborne iron ore market.

Third-quarter iron ore production totaled 76.8 million tonnes, up from 68.3 million in the same period last year, the company said. It also marked a 5 percent gain over the second quarter.

"Our strategy of focusing on long-life, low-cost assets means we will continue to generate strong cash flows despite a lower price environment, resulting in materially increased and consistent cash returns to shareholders," Rio tinto chief Executive Sam Walsh said in releasing the company's third-quarter production report.

Iron ore prices dropped to five-year lows this year as seaborne supplies grew amid slowing demand growth from the key Chinese market, though prices have seen a recent rebound.

The spot iron ore price was sitting at $83.10 a tonne , up from $77.50 at the end of September, according to data compiled by the Steel Index, though under a Citi forecast of $87 in the fourth quarter.

But Chinese iron ore futures rose to their highest in more than three weeks on Tuesday, adding to previous gains after also being hammered for most of this year.

Iron ore traders chalked up the most recent gains to improved economic data out of China.

A senior official at the National Development and Reform Commission, the country's powerful economic planner, said investment growth should pick up in coming months as authorities fast track infrastructure projects to support growth. That followed data released on Monday showing China's exports rose more than forecast in September and imports unexpectedly increased, calming fears of a slowdown.

Citi commodities analyst Ivan Szpakowski predicts iron ore prices will see a modest lift in the fourth quarter, driven by a pick up in machinery and infrastructure activity in China.

Ore prices should also find support from a wave of Chinese domestic iron ore capacity exiting the market in coming months.

Chinese mines had yet to react to recent price drops, such as the 12 percent fall over September, but were likely to do so at some point, according to Szpakowski.

"Recent mine production in China has been relatively stable, he said."

Rio Tinto produced 216.2 million tonnes in the first nine months, with its equity share of 170.3 million tonnes, and the rest going to joint venture partners in some of its mines. (Editing by Diane Craft)