Aviva reported a bigger-than-expected 6 percent rise in 2011 earnings, helped by stronger profits from life insurance, and said its capital reserves had recovered after taking a hit last year from the euro zone debt crisis.

The company, Britain's second-biggest insurer, had an operating profit for the year of 2.5 billion pounds ($3.9 billion), it said on Thursday, ahead of the 2.41 billion pounds pencilled in by analysts in a company poll.

Aviva also said its Insurance Groups Directive capital surplus, a key measure of financial strength for European insurers, had risen to 3.3 billion pounds as of February 29 from 2.2 billion pounds at the end of last year.

In November, Aviva said falling euro zone government bond prices had wiped 30 percent off its surplus between July and September last year, stirring fears over the company's capital strength and weighing on its shares.

Aviva still set a lower-than-expected total dividend of 26 pence per share for 2011, an increase of just 2 percent against the 5 percent expected by analysts.

It's a measured reaction to uncertainty in the market in the last few months, but a dividend at these levels is sustainable and we expect it to grow from here, Aviva Chief Executive Andrew Moss told reporters on a conference call.

Aviva shares were up 1.7 percent by 0915 GMT, outperforming a 1.3 percent rise in the Stoxx 600 European insurance share index. The stock has risen 14 percent since the start of the year against the index's 11 percent increase.

At first glance a better than expected set of results, with plenty for the bulls and something for the bears, analyst Marcus Barnard at Oriel Securities wrote in a note.

Aviva, which generates about 40 percent of its revenues in mainland Europe, has been more affected than its British rivals by the euro zone debt crisis, which has weighed on economic growth and stifled sales across much of the continent.

Moss said he was hopeful international efforts to overcome fiscal crises in Greece and other heavily-indebted euro zone nations were now beginning to work.

There are going to be a few bumps in the road, I'm sure, but the overall trend is towards agreement and resolution, he said.

Aviva's improved earnings last year mainly reflected a decision to walk away from less lucrative lines of business. That drove a 7 percent increase in profits from life insurance even as sales fell 6 percent.

(Reporting by Myles Neligan; Editing by Paul Hoskins and Mark Potter)