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UPDATE 4-Custom burgers, $1 drinks boost McDonald's sales; shares jump

(Adds executive comment on competition)

July 25 (Reuters) - McDonald's Corp on Tuesday posted its biggest jump in global sales at established restaurants in five years, helped by stronger traffic worldwide and U.S. initiatives including drink specials and custom sandwiches.

The world's biggest fast-food chain by revenue has been working to reverse traffic declines at U.S. restaurants, its top profit generator, with new products and services like fresh beef Quarter Pounders, signature crafted sandwiches, mobile ordering and delivery.

The moves are part of a broader turnaround plan under Chief Executive Steve Easterbrook, now in its second year.

McDonald's shares hit an all-time high and were a top gainer on the Dow Jones Industrial Average on Tuesday, and were last up 4 percent at $157.83.

The company appears to be winning back business lost to fast-food competitors like Wendy's Co and Restaurant Brands International Inc's Burger King, which McDonald's said in March had siphoned 500 million U.S. transactions away from the chain since 2012. The two rivals report earnings in August.

"Our gain will result in pain being felt elsewhere," Easterbrook said on a conference call to discuss the results.

McDonald's has also focused on value for U.S. customers by selling soft drinks of all sizes for $1 and McCafe beverages, which include frappes, smoothies and espresso drinks, for $2.

The new products and drink specials helped increase traffic and spending, with the sandwich launch persuading some lapsed customers to return and also bringing in new diners, said Neil Saunders, managing director of GlobalData Retail.

Global same-restaurant sales climbed 6.6 percent in the second quarter, helped by the strongest traffic in more than five years, beating the 4 percent growth estimated by analysts, the company said.

Sales at U.S. restaurants open at least 13 months rose 3.9 percent in the second quarter, topping the 3.2 percent increase expected by analysts, according to research firm Consensus Metrix.

Strong sales in China lifted comparable sales gains in McDonald's high-growth segment to 7 percent, almost double the 3.6 percent increase expected by analysts.

That contrasted with sluggish results from Yum China Holdings Inc, the China operator of KFC and Pizza Hut that was spun off from Yum Brands Inc.

Net income rose to $1.40 billion, or $1.70 per share, from $1.09 billion, or $1.25 per share, a year earlier.

Excluding items, McDonald's earned a profit of $1.73 per share, beating the average analyst estimate of $1.62, according to Thomson Reuters I/B/E/S.

Revenue fell 3.4 percent to $6.05 billion, but topped analysts' average estimate of $5.96 billion. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Meredith Mazzilli)