* Sold out of 27 coal and gold miners
* Sold down stakes in biggest gold firms
* Fund hikes bond investments in Q4
* Net seller of shares in 2013 for first time
* Fund had second-best year on record in 2013
By Gwladys Fouche and Camilla Knudsen
OSLO, Feb 28 (Reuters) - Norway's $840 billion sovereign fund, the world's biggest equity investor, has cut its investments in gold and coal miners due to environmental concerns and will review the entire mining sector this year, it said on Friday.
The fund, which grew by $200 billion in 2013 alone and owns about 1 percent of all global stocks, exited its investments in 27 gold and coal miners in 2013 and cut its stakes in others. The wider sector review potentially heralds one of the biggest changes since it was set up as a sovereign wealth fund in 1998.
"There is environmental damage by definition," Chief Executive Yngve Slyngstad told Reuters. "It does not mean that we are selling out of the sector. We are concentrating our investments on the companies that we think are continuing this activity in a more sustainable way."
The fund, which was also a big buyer of government bonds in the fourth quarter, is known as the oil fund because it invests Norway's surplus oil wealth. It owns $165,000 for each man, woman and child in the country.
Last year was its second best on record in terms of returns but it is coming under mounting pressure to invest the people's money more responsibly and balance its desire for returns with maintaining high ethical standards.
The fund does not break down its investments under a mining sector, but its investments in basic materials - which includes mining - represent 6.4 percent of its equities portfolio, or about $33 billion.
Earlier on Friday the government said it would separately set up a panel to examine whether the fund should quit oil, gas and coal firms over their environmental impact.
The move comes despite Norway being a major producer of oil and gas - the fund safeguards those revenues for future generations. Norway also extracts coal on the Svalbard archipelago in the Arctic.
In 2013, the oil fund sold more than 75 percent of its stakes in each of AngloGold Ashanti, Newmont and Newcrest, among the world's biggest gold miners.
"Companies that are having an activity that create huge externalities may over time get problems either through greater regulation, through lawsuits or through other ways of pricing the effects that they have on the external environment," Slyngstad said in an interview.
The fund also cut its stake in some big miners like Anglo American, Vale and Peabody but its stake in BHP Billiton , the world's biggest coking coal miner hardly changed while its stake in China Shenhua, a top coal firm, actually increased.
The fund, managed by the central bank, already excludes firms from its portfolio over ethical concerns and in previous years has blacklisted miners such as Rio Tinto and Barrick Gold over alleged environmental damage.
Rio said at the time it had an exemplary record on environmental matters and Barrick Gold said it complied with legal and other requirements.
The fund has also sold out of many palm oil producers, arguing that their production was not sustainable.
The fund was a big buyer of government debt in the last three months of 2013, boosting its exposure to the United States, Britain and Germany, and ditching stocks as a superb run on its equities investments in the previous quarters appeared to have run out of steam.
It also increased its exposure to emerging markets like China and Africa and picked up holdings for the first time in niche markets like Vietnam and Oman as it continued to move away from Europe, which has struggled with weak growth and high debt for much of the past decade.
The finance ministry, which sets the mandate for the fund, says it should reduce its share of European investments to 41 percent from 54 percent "over time".
The fund's return on its investments was 4.66 percent in the fourth quarter and 15.9 percent in all of 2013, its best year since 2009, when markets rebounded following the global financial crisis
"The year's results were driven by equity investments," Slyngstad said. "(But) 2013 was still the first year in the fund's history when we have been a net seller of shares."
In Africa, it increased its equity holdings by a quarter, buying more South African, Moroccan and Kenyan stocks, even as it quit much of its Egyptian portfolio.
The fund, which the Norwegian government forecasts to grow to $1.2 trillion by the end of the decade, had increased its bond holdings to 37.3 percent of its portfolio at the end of the year from 35.5 percent three months earlier, and cut its equity holdings to 61.7 percent from 63.6 percent.
In Africa, it held shares in 176 companies at the end of the year, up from 123 a year earlier, and invested for the first time in Zambia, Tunisia and Nigeria.
The finance ministry is currently conducting a review of the fund while the central bank has already said it should be allowed to take on greater risk, invest more in real assets and lower its bond exposure as prospective returns are diminishing.