* Sulzer freed from U.S. sanctions targeting Russian oligarchs
* Buys back Vekselberg shares to get his stake below half
* Aluminium giant Rusal could adopt similar strategy -source
* Sulzer shares rebound after sharp fall (Recasts with details about Rusal and comments from Sulzer CEO)
By John Revill and John Miller
ZURICH, April 12 (Reuters) - Switzerland's Sulzer has used a share buyback to free itself from U.S. sanctions, highlighting a potential escape route for other companies controlled by Russian oligarchs targeted in Washington's crackdown on President Vladimir Putin's inner circle.
The Swiss pumpmaker agreed to buy 5 million shares from shareholder Viktor Vekselberg, taking the Russian billionaire's holding below the 50 percent threshold where sanctions are activated.
The U.S. Office of Foreign Assets Control (OFAC) approved the deal, Sulzer said, freeing it from restrictions that had partly frozen its U.S. bank accounts and barred it from using U.S. dollars anywhere in the world.
Other companies targeted by the U.S. authorities could follow suit. One of the most prominent is aluminium giant Rusal controlled by tycoon Oleg Deripaska.
"If the Russian government buys some of the shares from Deripaska and Vekselberg and reduces their exposure to below 50 percent, then Rusal can ask to be removed from the list. But of course there is no guarantee the U.S. will agree to this," said one source close to Rusal.
Sulzer shares jumped more than 10 percent after it said on Thursday that it was no longer a blocked party or subject to sanctions under U.S. law and could resume normal operations globally after reducing the stake held on Vekselberg's Renova Group to 48.83 percent from 63 percent.
Sulzer said it would buy the shares at the volume-weighted average share price between Monday and Friday. At last Friday's closing share price of 126.3 francs, the deal would have had a value of 631.5 million Swiss francs ($658 million).
No money would have changed hands immediately with Vekselberg being subject to U.S. sanctions. Instead, the offer would be lodged on Renova's books as a receivable payment, while the money would be held by a neutral third party.
The U.S. sanctions were levied last week against Vekselberg and other oligarchs close to Putin as punishment for alleged Russian meddling in the 2016 U.S. election and what the U.S. Treasury Department dubbed other "malign activity".
For Sulzer, being barred from using U.S. dollars was significant as oil and gas customers make up nearly half of its business.
Sulzer, which employs 2,400 people in the United States where it generates around $700 million in sales, said it moved quickly after learning about the sanctions late on Friday.
The two sides were in contact over the weekend via lawyers, enabling a speedy deal.
"We proposed a solution that was in line with OFAC guidelines, and we demonstrated we were a solid corporate citizen...despite the fact that OFAC had never directly blocked us," Chief Executive Greg Poux-Guillaume told Reuters in an interview.
"It was quite clear to most observers that we were an unintended consequence."
"We don't see ourselves as a template for other companies and we are not trying to start a consulting firm here," Poux-Guillaume added.
"It was quite a surreal experience. I'm sure there will be lessons to be drawn from this."
Sulzer had suffered some losses when it could not take orders for three days but there was unlikely to be a long-term impact, Poux-Guillaume said.
The company plans to hold the shares it has bought and sell them into the market over the next few years, he said. Vekselberg's company also has agreed to keep its stake below 50 percent in the future, he said.
Renova would make up any losses Sulzer took on the shares, Poux-Guillaume said.
Sulzer shares, which fell by a fifth on the sanctions news, rebounded 15 percent in early trading and were up 9.5 percent by 1325 GMT.
As the sanctions continued to reverberate, Renova-controlled Octo Telematics in Italy put a planned initial public offering on hold, two sources said. (Additional reporting by Dmitry Zhdannikov in London; editing by Jason Neely/Keith Weir)