Aluminum producer Alcoa posted a three per cent rise in third-quarter earnings, as a gain on the sale of its stake in a Chinese aluminum company offset weaker aluminum prices.

Alcoa also raised its share buyback program -- from 10 per cent to 25 per cent of outstanding shares, or about 217 million shares. At the current share price, that is worth more than $6.7 billion.

After a quarter in which it was rebuffed in a $29 billion hostile bid to buy Canadian rival Alcan and named an heir-apparent to chief executive officer Alain Belda, Alcoa also said it expected to close the sales of two business units by the end of the year or early in 2008.

'The third quarter was challenging, with lower metal prices and a weaker dollar and we had cost pressures from raw materials and energy,' Belda told Wall Street analysts on a conference call.

But he said the outlook for the aluminum industry was strong, with 'robust demand' in China, which is still a net aluminum importer, and visible aluminum stocks up over 100,000 tons in September.

China's aluminum consumption is expected to grow 36 per cent this year and although US demand is seen declining 6 per cent, he expects overall global demand to grow more than 10 per cent.

Belda said Alcoa expects the aerospace market to be very strong for the company, although delays in the A380 Airbus have had an impact. He also said the North American automobile market was suffering from 'persistent weakness,' following a summer slowdown and overtime cuts at Ford and Chrysler.

Alcoa, which traditionally is the first major company to report earnings in a quarter, said net profit rose to $555 million, or 63 cents per share, compared with $537 million, or 61 cents per share, in the year-ago period.

Earnings from continuing operations were 64 cents per share, up 2 cents from a year earlier, the Pittsburgh-based company said.

Wall Street analysts lowered their profit expectations for Alcoa in recent weeks as the price of aluminum has slipped, but Alcoa's results surpassed analyst forecasts. Reuters Estimates had a consensus of 66 cents, which was comparable to 55 cents per share, excluding restructuring and Alcan transaction costs, the gain on Chalco and other items.

The falling metals prices, along with the exclusion of the company's soft alloy extrusion business that now forms a joint venture with Sapa in June, helped drag revenue in the period 2.6 percent lower to $7.4 billion.

'I think the big issue is the 25 percent buyback. It's both good and bad,' said analyst Charles Bradford, of Bradford Research/Soleil. 'Shrinking the company is good, (but) it's also an indication that they're running out of high profit things to do.

'Now the bigger problem is that the fourth-quarter metal price is 13 cents lower, and the other side of it is how fast do they buy back those shares?' Bradford said.

'They're not knocking the cover off the ball every quarter, but they're in a very positive operating environment and they're doing well enough to make us happy holding the shares,' said Chris Armbruster, research analyst at Al Frank Asset Management.

The results cap a busy few weeks for Alcoa. Last week, it said it had identified buyers for its packaging and consumer business and its automotive castings business. It also plans to restructure its electrical and electronic solutions business in the Americas and Europe.

On Tuesday's call, chief financial officer Chuck McLane said Alcoa took charges of $844 million in the quarter for restructuring and sale of the businesses. That was offset by a gain of $1.30 per share on the sale of the Chalco stake.

Last month, the company sold its stake in Aluminum Corp of China for about $2 billion, a $1.8 billion gain on an investment. Alcoa bought the stake six years ago as a financial investment and said its role as an investor was no longer needed by the now-esta