* Panasonic to fall into red for year to March -Nikkei
* Strong yen, tough competition behind decision -source
* In talks with Japan Display about selling TV panel plant -sources
* Panasonic shares up 3.1 pct vs. flat Nikkei average
* Company spokesman says nothing to announce
By Reiji Murai and Isabel Reynolds
TOKYO, Oct 21 (Reuters) - Panasonic Corp will drop a plan to convert a television panel plant in Japan into a solar panel factory, hit by an industry price war and a strong yen that is making exports less competitive, a source with direct knowledge of the matter said.
Panasonic is also in talks with public-private venture Japan Display about selling a liquid-crystal display TV panel plant located in Chiba, not far from Tokyo, said two sources with knowledge of the matter.
The Nikkei newspaper said on Thursday write-downs on Panasonic's TV panel plants will push the Osaka-based company into the red for the year to March, compared with a company forecast of 30 billion yen in net profit and an analysts' consensus of 11.6 billion yen.
Panasonic, which has been touting environmental and energy technology as key growth areas, had planned to convert its Amagasaki No. 1 TV panel plant in Hyogo prefecture, western Japan, to solar panel use and export the plasma TV panel equipment for use at a plant in Shanghai.
But it will now drop the plan and stop producing TV panels at Amagasaki No. 1, the source said.
Like rival Sony , Panasonic is struggling with losses in its TV division, and a source told Reuters on Thursday that Panasonic would slash TV panel production by halting its state-of-the-art Amagasaki No. 3 plant, which was completed less than two years ago, and lay off about 1,000 people.
An analyst said the cutbacks in the TV business would be welcome.
"It has become a business where it's very difficult to make a profit," said Ryosuke Katsura of Mizuho Securities.
"That means they need some big writedowns and they are wading in to do that. It's progress in that they are tackling one of their problems."
But Katsura noted that dropping plans for battery and solar panel expansion would create some uncertainty even if the move was understandable given current exchange rates.
"The reason they bought out Sanyo was to expand into the energy business. If they are not going to do this, we need some information about how they are going to grow."
Demand for solar panels is expected to slump in Europe due to cuts in government funding, while Panasonic is facing harsher competition from Asian rivals in the domestic market.
A spokesman for Panasonic said the company was considering various options for its TV panel and solar businesses, but had nothing to announce at the moment. It declined to comment on its earnings outlook.
The robust yen also prompted Panasonic to scrap a plan to expand a lithium ion battery plant in Japan, a source told Reuters last month. It is shifting its focus to China, where it hopes to produce half its output of such batteries the year starting in April 2015.
Shares in Panasonic closed up 3.1 percent at 776 yen, compared with a flat Nikkei average.
Panasonic, which is losing ground in consumer electronics to Asian rivals like Samsung Electronics , said in April it would lay off about 17,000 people in the next two years in a bid to cut costs and get rid of overlapping businesses after buying out rival Sanyo.
It is set to report July-September earnings and give a briefing on strategy on Oct. 31.
South Korean competitors are also feeling the pain from weak demand for TVs and computers amid an uncertain global economy.
On Thursday, LG Display of South Korea posted a record loss of 492 billion won.