* Books $9.3 bln in writedowns on aluminium, diamonds
* Posts H2 net loss of $1.76 bln
* CEO, CFO offer to give up bonuses
* Dividend hiked 34 pct to 145 cents a share
* Shares fall 2 pct in London trade (Adds details from presentation, updates shares)
By Eric Onstad and Sonali Paul
LONDON/MELBOURNE, Feb 9 (Reuters) - Global miner Rio Tinto took an $8.9 billion charge on its struggling aluminium business on Thursday, triggering a second-half net loss amid a gloomy medium-term outlook for the metal.
Five straight years of surpluses in aluminium and rising input costs have hammered margins in the industry, sharply reducing the book value of Rio's Alcan unit, purchased for $38 billion at the height of the commodities boom in 2007.
The write-off and losses prompted Chief Executive Tom Albanese and Chief Financial Officer Guy Elliott to forego their bonuses.
"As the acquisition of Alcan happened on my watch, I felt it only right not to be considered for an annual bonus this year," Albanese said.
Total one-off charges including a writedown on its diamonds business totalled $9.3 billion, causing net results for July-December to swing to a loss of $1.76 billion following a profit of $8.4 billion the previous year.
The aluminium division, which the company plans to shrink by hiving off most of its Australia and New Zealand assets, just broke even with earnings of $63 million in the half year.
Albanese painted a dismal picture for aluminium in the short and medium term after China has been adding new capacity in the west despite the oversupplied market.
"These pressures, together with the strengthening of some currencies and escalating raw materials, may continue to squeeze our margins in the medium term," he said in a presentation. "The current environment in the aluminium industry is tough."
Rio's London-listed shares fell 2.0 percent by midday, underperforming a 1 percent drop in the sector.
Despite the loss, Rio hiked its dividend by a third and said it was confident about its long-term outlook.
Like rival BHP Billiton , which reported a 6 percent fall in underlying first-half earnings on Wednesday, Rio was cautiously optimistic that a soft landing in China would drive growth this year.
Analysts said Rio's 145 cent dividend showed Rio remained upbeat in the face of volatility in commodity prices.
"The dividend has surprised on the upside," said Mark Taylor, senior resources analyst at Morningstar. "That's information about their confidence on their outlook."
Liberum Capital said the dividend hike brought Rio's yield to the 2.5 percent level of rival BHP, the world's biggest miner.
Rio, cashed up from massive iron ore sales and carrying little debt, had been considered the most likely among the major miners to reward investors with a share buyback or a substantial dividend increase. However, it did not expand its $7 billion buyback due to be completed this quarter.
The world's No.2 iron ore miner flagged an increase in investment and said it was in a stronger position than most in the industry to drive growth, a shot across the bow at the proposed $90 billion merger of Glencore and Xstrata .
Investors say the company should still have enough cash to chase acquisitions, such as increasing its stake in Canada's Ivanhoe Mines, co-owner of the huge Oyu Tolgoi copper and gold mine operated by Rio Tinto.
"I think Rio has within its wherewithal enough firepower to conduct capital management at the same time as doing sensible M&A," James Bruce, a portfolio manager at Perpetual, which owns shares in Rio Tinto, said ahead of Rio's results.
Excluding the writeoff, Rio's underlying earnings fell 5 percent to $7.77 billion, with booming iron ore sales making up the lion's share of the profits. Analysts on average had expected a second-half profit of $7.5 billion before one-offs.
While stepping up its dividend, Rio Tinto also flagged higher spending on projects for 2012, budgeted at $16 billion, up from $12.3 billion last year, with more spending on iron ore expansions likely to increase that even further.
Second-half profit from iron ore jumped 14 percent to $6.9 billion.
However, Rio warned rising costs had squeezed profits, especially on the labour front, just as workers at rival BHP Bowen Basin coal mines voted to go on strike for one week.
"Throughout Australia we've been impacted by rising costs and what I'm concerned about is declining productivity," Albanese told reporters. (Editing by Lincoln Feast and Mark Potter)