(Adds details, background)
TOKYO Jan 27 (Reuters) - Honda Motor Co (7267.T), Japan's second-biggest carmaker, plans to increase production capacity in China by 23 percent as it expects solid demand there for its fuel-efficient vehicles, a newspaper reported on Tuesday.
Honda shares rose over 3 percent in early trading, in line with gains at rivals Toyota Motor Corp (7203.T) and Nissan Motor Co (7201.T).
The Nikkei business daily said Honda is planning total output capacity of 650,000 vehicles a year by modifying existing lines at its Dongfeng Honda Automobile unit, which assembles the Civic car and the CR-V sport utility vehicle, for several billion yen.
Car sales growth in China, the world's second-largest auto market, slowed to a single-digit rate last year for the first time in at least 10 years as consumer confidence waned with a slowing economy. [ID:nSHA361216]
But the Nikkei said Honda judged that sales of its Civic and other fuel-efficient cars could still grow as sales at the Dongfeng unit jumped 29 percent in 2008, much bigger than the percentage growth in China's nationwide auto sales.
Honda spokeswoman Akemi Ando said Dongfeng was originally designed to be able to produce 240,000 vehicles, against its current output capacity of 120,000, but the company does not have any immediate plans to ramp up capacity in the face of weak demand.
With two other local units, Honda currently has capacity to make 530,000 vehicles a year. Honda's China vehicle sales rose 11.7 percent last year, slowing from a 31 percent rise in 2007. [ID:nSHA95477]
Separately, Toyota Motor Corp will start producing about 50,000 RAV4 sport utility vehicles a year in China, the Sankei newspaper reported.
Honda shares were up 3.9 percent at 2,020 yen as of 0037 GMT, while Toyota rose 3.6 percent to 2,855 yen. Nissan was up 2.9 percent at 284 yen.
The Nikkei average .N225 was up 1.9 percent. (Reporting by Sachi Izumi; Editing by Brent Kininmont)