UPDATE 2-Rio Q2 output up 8 pct in profitable iron ore unit

* Iron ore output higher than many analysts expected

* Still selling some iron ore at spot or provisionally

* Keeps annual output target at 200 million tonnes.

(Adds analyst comment, shares)

By James Regan and Eric Onstad

SYDNEY/LONDON, July 15 (Reuters) - Global miner Rio Tinto (RIO.L) posted a stronger-than-expected 8 percent rise in second-quarter output of iron ore, which accounts for the bulk of profit, but said on Wednesday global markets remained tough.

"Rio Tinto reported strong operating results for the second quarter in the business that will dominate the P&L," Macquarie Securities said in a note.

Rio Tinto (RIO.AX) is the world's second biggest producer of iron ore, which is expected to account for up to 80 percent of 2009 profit, analysts said.

Total production of 45.16 million tonnes of iron ore in the second quarter also marked a 43 percent rise over the first quarter, when output was cut due to reduced demand and heavy rains in the Pilbara region of western Australia, Rio said.

"There is some potential for production forecast upgrades thanks to better than expected iron ore and coal performances," Investec analyst Rebecca O'Dwyer said.

Rio Chief Executive Tom Albanese said markets were difficult and the firm would keep trying to hold down costs.

"Markets remained tough in the second quarter, as expected, particularly in aluminium," he said.

"We continue to press ahead with actions to reduce costs across the board, align production with demand and bring down levels of net debt."

Rio shares in London, which have surged 70 percent this year, gained 3.8 percent to 2,097 pence by 0952 GMT, outperforming a 2.6 percent increase in the UK mining index .FTNMX1770. In Sydney, shares rose 2.0 percent to A$50.08.

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