Norwegian fertilizer group Yara International ASA shied away from raising its offer for Terra Industries Inc to top a rival bid, boosting its shares on Friday but scuppering U.S. expansion plans.

Yara, one of the world's biggest producers of mineral fertilizers, said that despite yielding in the battle for Terra, it remained upbeat on consolidation prospects for the splintered global fertilizer industry, a hotbed of recent M&A activity.

Terra would be a perfect fit to Yara and attractive at our proposed valuation, but we will not increase our offer that was first accepted by the Terra board, chief executive Joergen Ole Haslestad said in a statement.

He told Reuters: Consolidation of the fertilizer industry worldwide is far from over. The way we see it today, acquisition options have been limited somewhat, but you never know how things will develop.

Haslestad said the United States remained an attractive market for Yara and vowed to seek growth in the region where a boom in unconventional shale gas has curbed costs for the energy-intensive industry.

Shares in Yara rose 7.5 percent to 257.1 crowns by 1234 GMT, with Yara's management seen keeping its cool to preserve shareholder value in avoiding an overseas M&A battle. Yara also stands to receive a $123 million deal break-up fee from Terra.

Yara agreed last month to buy Terra for $4.1 billion to create the world's biggest mineral fertilizer producer and boost its U.S. presence, as rivals join forces to gain size and reach.

But Terra said on Wednesday it planned to accept a superior $4.68 billion takeover bid from rival CF Industries Holdings Inc unless Yara boosts its offer.

Analysts expected Yara to give up on Terra.

Yara spokesman Asle Skredderberget said: We have said ... that we do not want to participate in a bidding war ... We want to grow in a way that creates value for our shareholders.

SMALLER STEPS

Analysts and producers expect a rebound in demand this year as farmers replenish their soil nutrient levels, stoking M&A. The world's largest fertilizer maker, Potash Corp

, on Thursday sharply raised its earnings forecast.

Strictly speaking there are no other (big) acquisition candidates there. We know that they would want Potash Corp, but Potash Corp is way too big for them, said analyst Samir Bendriss at Pareto Securities.

Some analysts said Yara could still take advantage of the underbrush of unlisted firms to expand in North America.

There is no shortage of growth opportunities for Yara, Fondsfinans analyst Per Haagensen said, adding that Yara could for example bid for the fertilizer arm of Koch Industries.

Diversified industrial group Koch operates a fertilizer division with ownership in plants in the United States, Canada, Trinidad and Tobago and Venezuela, according to its web site.

Analysts said Yara could also add production capacity in other markets where it already had a presence such as Qatar, Australia, Russia and Libya.

In particular, there's room for another plant in Libya. That's probably the next likely step, Haagensen said.

Another option would be for Yara to diversify into potash-based fertilizers, such as through a muted project in Ethiopia, he added.

CF had come a step nearer closing its deal with Terra when Canadian fertilizer maker Agrium Inc said on Thursday it was abandoning its $5.4 billion bid for CF Industries, ending a drawn out takeover battle.

These and other M&A battles have kept the fertilizer sector in investors' sights, despite a sharp fall in prices last year as the global economic crisis hit.

Yara's withdrawal opens the way for CF to tie up the Terra deal after a nearly year-long takeover saga, though the so-called fertilizer wars have seen many twists.

(Editing by David Cowell)

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