MILAN (Reuters) -Iveco Group said on Friday it was considering spinning off its defence business, sending its shares up as much as 16%, as the truck and bus maker forecast a modest increase in operating profit this year.

The defence division has been growing amid a global push in military spending and could benefit from a new wave of M&A expected in the industry.

It has been at the centre of numerous media reports highlighting the business as being of interest for Italy's state-controlled defence and aerospace group Leonardo.

Iveco's Milan-listed shares opened 16% higher. They were up about 12.6% by 0854 GMT.

The separation of Iveco's IDV defence business, which would also include the ASTRA quarry truck brand, could simplify the group structure, increase management focus and create strategic flexibility for both businesses, the company said in a statement.

Iveco's IDV posted a 10% operating profit margin last year, the only one of the company's industrial businesses to produce a double-digit result.

IDV and Leonardo already cooperate, including a recent preliminary supply agreement for a joint-venture between Leonardo and Germany's Rheinmetall aimed at developing and manufacturing combat ground vehicles, initially for the Italian army.

Iveco said it would provide an update on the potential IDV spin-off in the coming months.

Iveco forecast adjusted earnings before interest and tax (EBIT) from industrial activities of between 850-900 million euros ($882-$934 million) in 2025, versus a broadly unchanged 851 million euro result in 2024, which was slightly above the group's forecast.

CEO Olof Persson said the group's guidance for 2025 reflected expectations for a "two-speed year" for the truck business, with lower activity in the first half and a recovery in the second.

Last year's results were supported by pricing power and cost management, which largely offset a contraction in some of the industries where the group operates, he added.

Iveco, which announced a 0.33 euro per share dividend, also launched a new 130 million euro 18-month share buyback programme, replacing an existing one of the same amount, of which only 60 million euros was completed.

The group said it was also aiming to reduce its capital and operating spending by a total of 300 million euros in 2025 and 2026 as it accelerates its 'Efficiency Programme' and reprioritise certain investments.

($1 = 0.9639 euros)

(Reporting by Giulio Piovaccari; Editing by Giulia Segreti, Emelia Sithole-Matarise and Jane Merriman)