* World's top alumina plant shut in pollution dispute
* Brazil plant operated at half capacity since March
* Aluminum production at risk over alumina shortage
* Price of aluminum jumps, Hydro shares fall sharply (Adds CEO quotes)
OSLO, Oct 3 (Reuters) - Norsk Hydro will halt production and layoff 4,700 people at the world's largest alumina refinery, Brazil's Alunorte, which has been operating at half capacity since March due to an environmental dispute, it said on Wednesday.
The decision to close the plant indefinitely is a major setback for the Norwegian metals maker, which only last month signed two deals with Brazilian authorities that it believed would help it resume full production.
Hydro's shares fell 12 percent on the news to a 21-month low, making it the worst performer in the European STOXX 600 Index. The price of aluminum, the product made from alumina, climbed 5.5 percent to its highest since June.
The decision also triggered a shutdown of Hydro's Paragominas bauxite mine, which supplies Alunorte, and will lead to the imminent closure of the nearby Albras aluminum smelter, Chief Executive Svein Richard Brandtzaeg said.
"Thousands of people will be without jobs," Hydro Chief Executive Svein Richard Brandtzaeg told a conference call, adding that about 3,000 of those were employees and contractors at Alunorte and 1,700 were workers at Paragominas.
He did not give a number for how many could be laid off at the Albras smelter.
The closures will have "significant operational and financial consequences" Hydro said in a statement.
Alunorte made 6.4 million tonnes of alumina in 2017, about 10 percent of global production outside China and enough to make some 3 million tonnes of aluminum. Its partial shutdown earlier this year drove up market prices for alumina and aluminum.
The original output cut occurred after the company admitted making unlicensed emissions of untreated water during heavy rains, but while Hydro said its problems have been fixed, it has yet to convince authorities to allow a restart.
The decision to halt all production was taken as the refinery's waste deposit area is close to full capacity and the ongoing dispute is preventing Hydro from using a newly created residue facility, it said.
The company declared force majeure earlier this year on some alumina deliveries from Brazil, and now plans to expand this declaration, Brandtzaeg said.
"We will continue to work constructively with the authorities to lift the embargo and to resume operations in order to re-establish Alunorte as the world's leading alumina refinery," Hydro added.
Shares of Alcoa, a major producer of both alumina and aluminum, rose more than 9 percent in early U.S. trading, while Century Aluminium, which outsources alumina production, initially fell by 17 percent. (Editing by Dale Hudson and Edmund Blair)