Swiss based miner Xstrata launched one of the world's largest ever rights issues on Tuesday, raising 2.9 billion pounds to fund its acquisition of Canadian miner Falconbridge Ltd.

The cash call, less than originally flagged due to buoyant commodity prices, was the second largest ever cash call by a London listed company after telecom group BT's 5.9 billion pound offering in 2001.

Xstrata said the enlarged group's cash flow and business prospects had exceeded expectations due to strong commodity prices and better than expected cost savings from integrating the two mining giants.

Miners have been enjoying record prices for metals and other commodities. Unlike some of its rivals, Xstrata's operations have not been hit by labour issues in recent months.

The stronger commodity prices continue to have a huge impact on our earnings and cashflow. I think we are going to have a very good second half, Chief Financial Officer Trevor Reid told Reuters.

Xstrata shares rose as much as 4.2 percent before paring gains to trade 2.7 percent higher at 2,258 pence by 0915 GMT (10:15 a.m. British time).

Analysts said the rights issue was below expectations of $7.0 billion (3.7 billion pounds) and at a bigger discount.

It has been clear to us potential new investors have been delaying their entry onto the register until the rights issue. We suspect there is also a sizeable short in the market positioned for the event as well, Cazanove analysts said in a client note.

Xstrata said it would issue 235.8 million new shares at 1,265 pence apiece in the one for three rights issue, underwritten by Deutsche Bank and JP Morgan.

The issue is the world's fifth largest.

The price represents a 42.5 percent discount to Xstrata's closing share price of 2,198 pence on Monday.

Glencore International is being paid a $35 million (18.5 million pound) underwriting fee for taking up its rights and those of Credit Suisse Securities (Europe) Ltd. Between them, Xstrata's two largest shareholders own 36 percent of the company.

Xstrata took control of Falconbridge in August following a complex bid battle in which Xstrata had an edge after acquiring a 20 percent stake cheaply last year.

The deal made Xstrata the world's fifth biggest diversified mining company by market capitalisation and boost its copper and nickel portfolio.

Reid said he expected to go to the bond markets by early next year to partially replace $4 billion (2.1 billion pounds) in short term debt with longer term bonds. However, he expected a substantial part of the debt to be repaid through strong cash flows.

Xstrata previously flagged annual synergies of about $120 million (64 million pounds), through savings in administration, and the integration of its copper and nickel businesses with Falconbridge.

Reid said those forecasts were conservative and the company would have a better idea of its outlook following budget presentations at the end of October.

On August 2, Xstrata posted a 42 percent rise in first half profit and delivered and upbeat outlook. Higher commodity prices, efficiency gains and a stronger dollar drove earnings.