Aviva to generate extra $4 bln of cash, planning payback, some M&A

* Expects faster EPS growth; raises dividend payout target

* To have more cash to deploy than previously thought

* Debt repayment, M&A to use up some of the excess cash

* Shares (Berlin: DI6.BE - news) up 2.5 pct, among top blue-chip gainers (Adds further details, comments by CEO)

By Carolyn Cohn

LONDON, Nov 30 (Reuters) - Aviva (Other OTC: AIVAF - news) expects to generate an extra 3 billion pounds ($4 billion) in cash over the next two years and will make acquisitions as well as giving money back to shareholders, it said on Thursday, sending its share price to three-month highs.

Insurers and reinsurers, among them Allianz (Swiss: ALV-EUR.SW - news) and Swiss Re (LSE: 0QL6.L - news) , have been returning cash to shareholders as strong competition cuts opportunities for expansion.

Aviva has made a number of disposals in the past year, including in France, Spain, Italy and Taiwan (Taiwan OTC: 6549.TWO - news) , and says its Indian joint venture is under "strategic review".

"The franchises we have left have a pretty decent track record," Chief Executive Mark Wilson told an investor day in Warsaw.

"We are moving into a new phase and we have the capital to be able to do it."

Aviva expects to deploy 2 billion pounds of cash in 2018 by spending 900 million pounds on repaying expensive debt and using the remaining 1.1 billion pounds for "bolt-on" acquisitions and returning cash, it said in a statement ahead of the investor day.

Some analysts had anticipated Aviva would announce a share buyback of 1 billion pounds on Thursday, but Wilson (Oslo: WILS.OL - news) said the firm had an "appetite for M&A".

Aviva has said it is only looking at small purchases following its 5.6 billion-pound ($7.5 billion) takeover of Friends Life (Other OTC: RSLLF - news) in 2015, and is interested in expanding in "insurtech" and artificial intelligence.

Aviva's cash promise helped send its shares to three-month highs. They were up 2.17 percent at 520 pence at 1035 GMT, the second-biggest gainer on the FTSE 100 index.

Morgan Stanley (Xetra: 885836 - news) analyst Jon Hocking reiterated his 'overweight' rating on the stock in a note to clients. "Taken as a package, we think this is a bullish set of goals from Aviva (Amsterdam: AW8.AS - news) and, if achieved, the current multiple on the shares looks too low," he said, giving the shares a 649p price target.

Aviva said it was raising its expectations for earnings growth to more than 5 percent annually from 2019 onwards, from a previous target of mid-single-digit growth.

It also said it would increase its dividend pay-out ratio to 55-60 percent of earnings per share by 2020, from 50 percent.

The new targets are "achievable", JP Morgan analysts said in a note, reiterating their "overweight" investment rating on the shares. ($1 = 0.7424 pounds) ($1 = 0.8428 euros) (Additional reporting by Simon Jessop Editing by Jason Neely, Greg Mahlich)