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UPDATE 1-Japan's Elpida falls on subsidy-related worries

* Shares fall as much as 14 pct to 2-month low

* Credit Suisse downgrades stock

(Adds background, details)

TOKYO, Oct 1 (Reuters) - Shares in Elpida Memory Inc 6665.T hit a two-month low on Thursday on fears stoked by a report that the U.S. would bring up government subsidies received by Japan's biggest PC chip maker at the World Trade Organisation.

Shares in Elpida -- Japan's sole maker of dynamic random access memory (DRAM) -- tumbled 8.2 percent to 1,080 yen after falling as much as 14 percent, against a 1.4 percent fall in the Nikkei average .N225.

This followed a Bloomberg News report that the Obama administration had promised to press Japan and Taiwan over their support to the firm following complaints from U.S. rival Micron Technology Inc MU.N.

The article cited a letter from U.S. Trade Representative Ron Kirk to Idaho Senator Mike Crapo, following Crapo’s repeated claims that Micron was at a disadvantage relative to its subsidised competitors.

Neither Kirk or Crapo were immediately available for comment.

“Whether or not the U.S., which has been subsidising so many sectors itself, will go through with the WTO proceedings isn’t clear, but I think markets have been reminded of the many uncertainties around the chip sector,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Dealers said Elpida was also hit by Credit Suisse downgrading its rating on the stock to neutral from outperform, citing a peak in prices of dynamic random access memory chips.

DRAM prices have been buoyed by demand for cutting-edge DDR3-type chips for more power-efficient laptops. But sector leader South Korea's Samsung Electronics 005930.KS last week warned that the recovery so far was due to government help [ID:nTP253351], while analysts also said DRAM prices are expected to peak in October.

Credit Suisse analyst Hideyuki Maekawa cut his target price on Elpida, to 1,100 yen from 1,500 yen.

Micron posted on Wednesday a narrower quarterly net loss of $88 million, from a $344 million loss a year earlier, on improving demand, but its shares were hit by its toned-down outlook [ID:nN29166248]. Elpida, which is reeling from seven straight quarterly losses, the previous day obtained 110 billion yen in loans from 14 commercial banks and the government-backed Development Bank of Japan.

The company also plans to enter capital ties with Taiwan government-backed Taiwan Memory. It is now hurrying to raise another 60 billion yen to invest in new technologies and pay back debt while DRAM prices remain strong. (Reporting by Mayumi Negishi; Editing by Anshuman Daga and Joseph Radford)

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