* Rio says Yancoal deal could be agreed more quickly
* Says Yancoal has improved offer
* Shareholders to vote later this month (Adds detail of termination fee, updates share prices)
By James Regan and Barbara Lewis
SYDNEY/LONDON, June 20 (Reuters) - Rio Tinto RIO.L RIO.AX selected Yancoal YAL.AX on Tuesday to buy its Coal & Allied division in Australia for $2.45 billion, surprising commodities trading giant Glencore , GLEN.L which had put in a higher bid.
Glencore offered $2.55 billion cash this month for Rio's coal mines in the Hunter Valley region of New South Wales, beating a previous offer from Yancoal, which is based in Australia and owned by China's Yanzhou Coal Mining Company. has long sought Rio's high-quality thermal coal assets in the Hunter Valley. Despite environmental concerns about the carbon-intensive fossil fuel, Glencore expects continued demand, especially in Asia, as coal can still be the cheapest form of baseload power.
Rio said it was favouring Yancoal's offer in the light of additional information, including confirmation of Yancoal's funding plans - although it did not publish details - confirmation of regulatory approvals and improved terms.
It also said a previous termination fee of $23.5 million that Yancoal had to pay to Glencore if it could not raise sufficient funding to complete the deal was now $100 million.
Glencore said it would respond in due course.
"We believe Yancoal's offer to purchase our thermal coal assets for $2.45 billion offers the best value and greater transaction certainty for shareholders," Rio Tinto Chief Executive Jean-Sebastien Jacques said in a statement.
He said the sale was part of a strategy to simplify Rio's portfolio and ensure "the most effective use of our capital".
Industry sources said they expected Glencore to continue to press its case to buy the Australian coal mines, which are next to assets it already owns.
One source close to Glencore, who asked not to be identified, said executives were "in a state of disbelief".
The source said they questioned the financial strength of loss-making Yancoal, which has market capitalisation of about 300 million Australian dollars ($228 million) compared with Glencore's 41.6 billion pounds ($52.7 billion). TIMELY
Rio Tinto said Yancoal had agreed to accelerate payments it had said it would defer when it made its original offer in January. Yancoal will also pay a royalty linked to coal prices.
"Yancoal has demonstrated the value of its offer to Rio Tinto and its shareholders and achieved an agreement in the best interests of the Coal & Allied operations and our continued future growth and investment in Australia," Yancoal Chairman Xiyong Li said.
Rio said Yancoal's offer could be completed in a more timely manner than Glencore's bid, adding that Glencore had not secured clearance from various jurisdictions, including the Australian, Chinese, South Korean and Taiwanese authorities.
Glencore said it had received clearance from Japan, which would be the destination for much of the coal involved.
In 2014, Glencore made an unsuccessful approach to merge its Australian coal mines with Rio Tinto's, arguing a deal could save hundreds of millions of dollars in operational and transport costs and other synergies.
Rio Tinto shareholder meetings have been convened for June 27 in London and June 29 in Sydney to vote on the Yancoal sale, which is expected to be completed in the third quarter.
The meeting dates still allow time for another offer from Glencore.
Glencore's shares fell by nearly 4 percent in London trade, while Rio's London stock dropped 2.9 percent, roughly in line with the broader sector .FTNMX1770 .
"Missing out may be a little disappointing for Glencore which will remain in the hunt for alternative transactions," BMO Capital Markets said in a note. But it said one positive aspect was greater financial flexibility to pursue plans to expand its agriculture business. = 1.3153 Australian dollars)
($1 = 0.7897 pounds) (Editing by David Clarke and Edmund Blair)