Spain's Santander shrugged off concerns of a debt crisis at home and showed its overseas expansion ambitions are still intact with the buyout of its Mexican division for $2.5 billion.

Spain's biggest bank will buy the remaining 24.9 percent of Santander Mexico from Bank of America in a deal that analysts said was no surprise and strategically smart.

Santander Chairman Emilio Botin has been a canny deal maker in the past -- notably with early entry into Brazil and timely transactions in Italy and Britain -- and has his eyes on other assets.

Santander is close to entering exclusive talks to buy a network of branches from Royal Bank of Scotland to bulk up in Britain, sources said, which could cost near 2 billion pounds.

It is also expected to attempt to build up its U.S. bank Sovereign, targeting the north-east of the country.

Santander is showing that it can still make decisions and go on with its business plan despite the liquidity problems in the markets, said Venture Finanzas analyst Ignacio Mendez.

Apart from further U.S. expansion, analysts have long flagged Mexico as a country where Santander was keen to expand its presence, taking advantage of the sharp uptick in economic growth expected there over the next few years.

The Mexican government target is for the economy to grow 4.1 percent in 2010.

The Mexico deal will be 1.3 percent earnings per share (EPS) accretive from the first year and will provide a return on capital of 15 percent from the third year, Santander said.

The deal will shave about 0.31 percentage points off its core capital.

At 1319 GMT Santander shares were up 2.73 percent at 7.56 euros, outperforming a firmer blue-chip IBEX index <.IBEX>.

MEXICO GOOD GROWTH BET

The acquisition is positive news, although using our own estimates the impact on earnings falls somewhat behind Santander's figures at 0.8 percent, BPI analysts said in a note to clients.

The return on capital in the medium-term seems in line with the return levels demanded by the market for high-growth markets such as Mexico, BPI said.

Santander Mexico is the country's third largest financial firm with a 15 percent market share of deposits and 13 percent of loans. Santander sold the 25 percent stake to Bank of America for $1.6 billion in 2003.

This is a good move for Santander, although not a surprise. Buying out Bank of America's stake in Santander Mexico was probably the only way it could significantly expand in the country, a leading Spanish bank analyst, who requested anonymity, said.

It is now well positioned to take advantage of expected opportunities in credit growth and pension and investment funds expansion, he said.

Santander's arch rival, Spain's second largest bank BBVA , said last month it expected its Mexican unit Bancomer to post a substantial increase in profit in 2011, benefiting from an upturn in economic growth.

(Reporting by Judith Macinnes; Editing by Dan Lalor and Hans Peters)

United kingdom Mexico