UPDATE 2-First Solar enters US residential market; stock up

* First Solar to invest $25 million in installer SolarCity

* First Solar shares rise nearly 10 percent (Adds First Solar CEO comment, updates share prices)

NEW YORK, Oct 29 (Reuters) - First Solar (FSLR.O) is entering the U.S. residential market with a five-year deal to supply 100 megawatts of thin-film solar modules to installer SolarCity, the manufacturer said on Wednesday.

First Solar, which produces the lowest-cost solar cells in the industry, will also take a minority stake in SolarCity with a $25 million equity investment in the privately held company, which installs clean-power systems in California, Arizona and Oregon.

Tempe, Arizona-based First Solar has focused on larger solar installations rather than the residential markets, where installation costs tend to be higher. Germany, with its generous subsidies, has been its largest market.

The company's solar modules, which use cadmium telluride, are not as efficient as silicon-based cells in turning sunlight into electricity.

First Solar Chief Executive Michael Ahearn said his company had been talking to SolarCity for about a year and a half.

"In our view, the relationship with them represented a way to get the all-in cost to the consumer at affordable prices and expand the market," Ahearn told Reuters.

He declined to comment on whether First Solar was considering further deals to move into the U.S. residential markets.

First Solar shares were up 9.7 percent at $125.17 in afternoon Nasdaq trading. The stock has fallen more than 50 percent this year and has been trading near 12-month lows.

The company is reporting quarterly earnings later on Wednesday.

SolarCity said the equity investment was part of a $30 million round of financing to fund its expansion. The company offers financing to homeowners and small commercial customers that allows them to avoid high initial costs of installing the systems.

"We are the largest residential installer in the U.S.," SolarCity Chief Executive Lyndon Rive told Reuters. "We have grown on average 200 to 300 percent every year."

SolarCity said its installed costs for the photovoltaic solar systems were between 14 cents and 25 cents per kilowatt hour, including government subsidies.

The company has installed solar modules made by BP Solar (BP.L), Evergreen Solar (ESLR.O) and Kyocera (6971.T).

The United States recently extended by eight years the tax credits that help bring down the cost of the renewable energy systems and removed a cap on the subsidies for homeowners. (Reporting by Matt Daily, editing by Dave Zimmerman and Lisa Von Ahn)