OSLO, September 9, 2008 (AFP) - Norway said Tuesday that its state pension fund, one of the world's largest sovereign wealth groups, would no longer hold shares in Rio Tinto because the Anglo-Australian mining giant damages the environment.

The pension fund, which was worth 1.99 trillion kroner (252 billion euros, 368 billion dollars) at the end of June, has sold all its Rio Tinto stock -- a holding worth more than 4.8 billion kroner at the end of 2007.

'The finance ministry has decided to exclude the Rio Tinto group from the public pension fund because of the serious environmental risks' the company is involved in, the ministry said in a statement.

'There is no sign that the company's practices will change in the future nor that measures will be taken to significantly reduce the damage caused to nature and the environment,' it added.

It said it based its decision on the fact that Rio Tinto, together with US mining giant Freeport -- barred from the fund in 2006 -- exploits the Grasberg mine in Indonesia which discharges tailings into a nearby river.

In London, a Rio Tinto spokesman said 'our immediate reaction was one of surprise and disappointment. We believe that Rio Tinto has an exemplary record regarding the environment and is an industry leader in that respect.'

Asked whether the company had been told in advance about the share sale, the spokesman said: 'We have regular discussions with our major shareholders and we had no reason to believe that this was about to happen.'

Norway's Government Pension Fund-Global is commonly referred to as the 'oil fund' as it contains nearly all of the state's revenues from the country's booming oil industry.

It was created in the 1990s to finance Norway's welfare needs after the country's oil dries up.

Ethical guidelines already bar the fund from investing in 'particularly inhumane' weapons manufacturers and in companies known to be involved in large-scale human rights violations, corruption, or environmental pollution.

Its ethical guidelines are now followed by a growing number of private funds.

Close to 30 companies, including Boeing, Wal-Mart, EADS, Safran and BAE Systems, are on the blacklist.