UPDATE 2-Solar shares hit as Norway's REC cuts output

* REC cuts Q2 solar cell, module production by 50 pct

* Does not expect changes in Q3 and Q4 production

* Shares down 7.5 pct, peers also suffer

(Adds details, background, analysts, updates share price)

By Aasa Christine Stoltz and Richard Solem

OSLO, April 3 (Reuters) - Shares in solar industry group Renewable Energy Corporation (REC) (REC.OL) plunged after it said it would cut solar cell and module production in the second quarter by nearly 50 percent to adjust to weak markets.

Norwegian REC said it planned to restart halted production from July 1 to comply with supply contracts and that it did not envisage more changes in volumes in the second half of 2009.

Demand for solar panels has dropped sharply during the global crisis, sending prices for raw materials such as polysilicon tumbling, and hurting profits of solar energy component makers.

"The main reason (for the cut) lies in demand and the market," John Andersen, head of REC's Solar unit, told Reuters, adding that sales had been weaker than expected, particularly in the first half of the first quarter of 2009.

"The uncertainty in the financial sector is also affecting the investment appetite for solar energy," he said.

Shares in REC, which have lost 25 percent of their value since the start of the year, fell as much as 9 percent on the news and were down 7.5 percent to 54.30 crowns by 1415 GMT, against a 1.8 percent drop in the Oslo bourse .OSEBX.

Shares in Germany's Q-Cells (QCEG.DE), the world's largest maker of solar cells, and shareholder in REC with a 17.2 percent stake, fell 7.6 percent on the production reduction. Shares in German SolarWorld (SWVG.DE) fell 2.8 percent.

Analysts said it was not clear if REC's troubles were company specific or part of the sector's continued weakness.

Hakon Levy, an analyst at Fondsfinans, said the situation was "troublesome" and applied "to many solar sector companies".

However, Karsten von Blumenthal, an analyst at SES Research who covers Q-cells, said: "It will be interesting to see if this is a problem of REC -- which is what I think -- or a more general problem -- a more severe lack of demand for modules."

"Bad news for REC is usually bad news for Q-Cells."

Q-Cells said last month that it saw business picking up in March, suggesting it may have passed the worst of the crisis.

A Q-Cells spokesman confirmed earlier statements that the company is adjusting its production to the current market environment, but declined to elaborate further.

REC said that about 180 employees would be affected by the cuts through terminations of temporary employment, temporary lay-offs of permanent employees and rescheduled vacations.

REC said earlier this week it would temporarily halt production at its U.S. polysilicon plant at Moses Lake, Washington, after 10 days of operation due to start-up troubles, and said it was uncertain of how long it would stay shut. (Additional reporting by Christoph Steitz in Frankfurt; Editing by David Holmes and Simon Jessop)