* Says wafer prices have nearly halved over last six months
* Uncertainty in financial markets affecting solar market
* Economic uncertainty in Italy also a factor
* Some 700 employees may lose jobs
* Shares down 5 pct
By Henrik Stolen
OSLO, Sept 28 (Reuters) - Renewable Energy Corp plans to permanently close some output capacity in Norway due to weak market conditions, the Nordic solar firm said on Wednesday.
Over the summer, REC temporarily suspended some 45 percent of its wafer-producing capacity across three plants in Norway due to tumbling prices. Wafers are thin slices of semiconductor material used in the building of solar panels.
"The situation has been difficult for most of 2011, with wafer prices falling close to 50 percent in the course of the last six months," Mikkel Toerud, head of investor relations at REC, told Reuters.
"We shut this capacity over the summer due to the market situation ... When we saw market developments had also been difficult since the summer, we had to initiate this process of permanently closing down production."
Wafer prices would have to rise at least 20 to 30 percent before Norwegian output could resume, REC's chief executive told Reuters in July.
REC will enter talks with unions over the possible permanent closure of the production capacity, which could affect some 700 employees at REC's plants at Heroeya, Glomfjord and Narvik.
"It was expected," said Nordea Markets analyst Andre Adolfsen. "It is not competitive so there are no reasons to continue with these plants."
Shares in REC were down 5.35 percent to 6.19 Norwegian crowns ($1.082) at 0803 GMT while the Oslo benchmark index was down 1.1 percent.
The wafer market has stabilised somewhat after a drastic fall in recent months, REC's chief operating officer said.
"There is no doubt that the solar market is closely tied to the state of the financial markets," John Andersen told Reuters. "The projects that our products eventually go into depend on financing, both for equity and debt capital."
Economic uncertainty in Italy -- the world's second-largest solar market after Germany -- and a debate over its large government subsidies also played a part, Andersen said.
"We see that investors and bankers are more hesitant on projects," said Andersen. "It is not just because of the turmoil on the financial markets. There have been big discussions over the summer about the (solar) regime in Italy."
"They have done an audit about the incentives regarding photovoltaic installations and that has shaped a lot of uncertainty."
REC's wafer production capacity in Norway could be permanently reduced by some 45 percent, equivalent to some 775 megawatts (MW), the firm said. Solar production capacity of some 180 MW could also be cut for good.
Some production would continue at Heroeya and Glomfjord after the closures, REC said.
$1 = 5.720 Norwegian Kroner Editing by Helen Massy-Beresford