NEW YORK (Reuters) - Highfields Capital Management has increased its stake in Canadian coffee and doughnut chain Tim Hortons from 1.5 percent to around 4 percent this year, a source familiar with the situation told Reuters Wednesday.

A Highfields spokeswoman declined to comment. A Tim Hortons spokesman was not immediately available for comment.

Hedge fund Highfields Capital, which has a track record of bringing about change at other firms, wants Tim Hortons to boost returns through debt-funded share buybacks and a scaling back of U.S. expansion plans, according to documents seen by Reuters and two sources familiar with the matter.

Reuters first reported the news of Highfields' behind-the-scenes agitation Tuesday night.

(Reporting by Jessica Toonkel; Editing by Lisa Von Ahn)

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