Antofagasta H1 copper output up 7.1 pct, keeps guidance

* Averted strike action

* Set to hit high end of guidance - analyst (Adds detail, background)

LONDON, July 26 (Reuters) - Chilean copper producer Antofagasta said on Wednesday production in the first half rose 7.1 percent and kept its full-year cost and output guidance after talks to avert strike action.

Copper prices have rallied this month as the global market is increasingly seen close to balanced, compared with expectations of a surplus at the start of the year, after an Indonesian strike and contract negotiations at Chile's Escondida interrupted supply from the world's top two mines.

New labour laws in Chile, combined with still relatively low prices, have stoked fears of more widespread labour disputes, but Antofagasta averted strike action last week when it signed a wage deal with workers.

The company said full-year production was still expected to be between 685,000 and 720,000 tonnes, unchanged from a forecast from the beginning of the year, although output would be higher during the second half.

It also kept its forecast for costs unchanged, with cash costs before credits for by-products expected to be $1.55 per pound and net cash costs of $1.30 per pound.

CEO Ivan Arriagada said the company had continued its focus on improving efficiencies and savings and as mines had improved output, costs had fallen.

"This has resulted in a net cash cost of $1.20/lb for the second quarter of 2017, down more than 5 percent on the previous quarter," he said in a statement.

"Production and costs remain in-line with our expectations and our guidance for the year is unchanged."

Hunter Hillcoat, analyst at Investec, which rates Antofagasta a buy, said the output results were slightly higher than expected and the company "looks likely to hit the high end of its guidance". (Reporting by Barbara Lewis in London and Sanjeeban Sarkar in Bengaluru; editing by Louise Heavens and Jason Neely)