* Rio says demand holding up, selling all production
* Q3 iron ore output rises 5 pct
* Says coal mining recovers from Australian floods
* Copper output misses forecasts, cuts guidance
* Shares down 2.3 pct in London, sector down 3.15 pct (Adds London shares, analyst, details)
By James Regan
SYDNEY, Oct 13 (Reuters) - Mining giant Rio Tinto sought to brush off fears of a global economic crisis on Thursday, reporting record iron ore sales and a 5 percent jump in output for the third quarter, predicting continued strong commodities demand.
Rio missed forecasts for copper, its second-largest division, with output down by almost a third after a strike and analysts remain concerned about the longer term outlook for its biggest market in China, despite the company's bullish tone.
"We are operating at full capacity, selling all we produce and our growth programme is on track, supported by the strength of our balance sheet," Chief Executive Tom Albanese said in the company's quarterly production report.
"Whilst we are mindful of current market volatility, the fundamentals are holding up well, particularly for bulk-traded commodities," he said.
The materials component of MSCI's index of Asia Pacific shares outside Japan has fallen more than 20 percent since late July, when global equity markets began tumbling on fears of renewed recession in the developed world.
"The controversy is not what demand has done up to this point, it is what it will do in three or six months' time, or next year," analyst Nik Stanojevic at Brewin Dolphin said.
At 1138 GMT, Rio's London shares were down 2.3 percent, slightly outperforming a 3.1 percent drop in the UK sector.
Bank of America Merrill Lynch analyst Peter O'Connor said Rio Tinto had set production records "where it counts", highlighting in a client note that 71 percent of the company's 2011 earnings before interest, tax, depreciation and amortisation were projected to come from iron ore sales.
Rio Tinto, the world's second largest iron ore miner after Vale of Brazil, kept its 2011 forecast for record production of more than 240 million tonnes and said third-quarter output had jumped 5 percent to 64 million tonnes.
Rio Tinto's Australian shares closed 2.8 percent higher at A$69.34, against a gain of less than 1 percent in the wider market . The shares are down about 21 percent for the year-to-date, against an 11 percent fall for the benchmark.
Rio Tinto's bullish stance come as spot iron ore prices trade at their lowest levels since November 2010 on slower demand from China owing to weak steel prices.
But a drop in sales revenue from iron ore is unlikely to turn up until the end of the year.
During the third quarter Rio Tinto priced the majority of its iron ore using a quarterly index-linked price, set at the prior quarter's average lagged by one month.
Signs of slowing demand in China have weighed on steel prices, particularly long products used for construction, due to tighter credit and as a construction boom that fuelled a record pace of production earlier in the year had lost steam.
Analysts were expecting production increases for both iron ore and coking coal from Rio Tinto, given that it has embarked on major expansion works in those two commodities.
Even in a declining market, Rio Tinto is seen as among the last to slow down output of steel-related raw materials due to its low production costs.
China is the key market for Rio Tinto's iron ore business, but there have been concerns that the Chinese economy could be headed for a hard landing. Its trade surplus narrowed in September for a second straight month as growth of exports and imports both pulled back, seen as a reflection of global economic weakness and domestic cooling.
On the other hand, China imported 60.57 million tonnes of iron ore in September, the highest monthly volume since January.
BHP Billiton's iron ore resources are also dominated by mines in Australia and it also is producing more. It ran at the higher annualised production rate of 165 million tonnes in the September quarter of this year, well above last year's rate of 144 million tonnes.
Rio Tinto's output of hard coking coal, another steel-making raw material, rose 14 percent in the third quarter from a year earlier and soared 55 percent from the second quarter as Rio Tinto's flood-stricken Australian mines returned to normal.
Mined copper output dropped 32 percent year-on-year and Rio was forced to downgrade guidance for mined copper by 3 percent and 4 percent for refined copper.
The shortfall over the three months was largely due to a 15-day work stoppage at its 30 percent-owned Escondida mine in Chile, exacerbated by lower ore grades and reduced mill throughput at its Kennecott mine due to a crusher move.
It said aluminium production ticked 2 percent higher and confirmed its guidance for the year, but Rio warned on cost pressures including rising prices for caustic, coke and pitch. (Additional reporting by Clara Ferreira-Marques in LONDON; Editing by Alex Richardson and Elaine Hardcastle)