Shares of Trina Solar Ltd and Yingli Green Energy Holding Co surged more than 20 percent in morning trading, while those of JA Solar Holdings Co Ltd were up 14 percent. Shares of JinkoSolar Holding Co Ltd and Suntech Power Holdings Co Ltd rose about 10 percent.

The Chinese government has allocated a further 7 billion yuan ($1.1 billion) in subsidies to the solar sector, taking this year's support to 13 billion yuan, the official Xinhua news agency reported on Wednesday, quoting the finance ministry.

State-run banks in China have already extended billions of dollars of credit to their solar firms, sparking a European Commission investigation into subsidies for Chinese companies. The United States earlier this year imposed steep tariffs on some solar panel imports from China.

"What Beijing is doing is essentially trying to replace the diminished export sales with lower price, lower margin domestic sales," said Raymond James analyst Pavel Molchanov. "It is a backdoor bailout."

The news of the hefty investment comes a day after Xinhua, quoting an industry insider, said China may almost double its upper limit for solar power capacity to 40 gigawatts (GW) by 2015.

China in September raised its 2015 target for solar power capacity by 40 percent to about 21 GW, the third rise in just over a year.

"We are positively encouraged to see support for increased PV power generation channeled at the project level, where we are conducting a growing proportion of our global business with local partners, which includes building owners," said Thomas Young, a spokesman for Trina Solar.

JinkoSolar earlier this month said its Swiss unit will get up to $1 billion over five years from China Development Bank to fund solar projects outside China.

Though state support has helped Chinese companies raise their output manifold, an oversupply of solar products and weak demand in Europe have virtually erased margins at the firms.

"Just because you sell more megawatts at zero percent margins doesn't mean you'll make more money. China will be able to absorb more capacity next year, but it doesn't change the economics of solar," said Aaron Chew, an analyst at Maxim Group.

LDK Solar Co Ltd, which is heavy in debt like most other Chinese solar companies, said on Wednesday it was in talks with some creditors to get flexibility on certain terms and conditions of its offshore debt.

Shares of the company, valued at about $132 million, were up 16 percent in afternoon trading.

Center>Copyright Reuters, 2012