LOS ANGELES (Reuters) - China's Suntech Power Holdings Co Ltd reported a higher-than-expected 58-percent rise in quarterly earnings and lifted its 2008 revenue target on strong demand for solar energy, sending its shares up nearly 16 percent.

The company also said yesterday that demand from Italy, Germany and other markets would offset a drop in sales to Spain next year as that nation pares back generous government subsidies for solar power.

"We have far more demand in the pipeline than we intend to supply," chief executive Zhengrong Shi said on a conference call with analysts.

About 40 percent of Suntech's second-quarter sales came from Spain, and concerns about a pullback in demand from that market have weighed on the company's stock in recent months.

After more than doubling in 2007, Suntech shares had fallen more than 50 percent this year at Tuesday's close. On Wednesday, however, they rose as much as 15.7 percent to $42.96, their highest level since June.

In a positive sign for investors, Suntech forecast a 20-percent decline in polysilicon costs in 2009 and said contracted selling prices on its products for next year so far were better than expected.

"If they do get those types of silicon price reductions ... then they could be in a very good position to keep or raise gross margins next year," said Jefferies & Co analyst Paul Clegg, who has a "buy" rating on Suntech.

Polysilicon is the key raw material used to make solar cells, accounting for 70 percent of Suntech's costs of goods sold. Tight supply has crimped expansion in the fast-growing sector, although prices are expected to fall as new production comes online later this year.

Suntech's second-quarter net income rose to $65.2 million, or 38 cents per American Depository Share, from $41.3 million, or 25 cents per ADS, a year earlier.

Wall Street analysts, on average, had been expecting earnings of 32 cents per ADS, according to Reuters Estimates.

Revenue jumped 51 percent to $480.2 million, well above the $443.53 million analysts had been expecting, in part because of a strong euro.

Gross margin, excluding stock-based compensation, increased to 24.7 percent from 22.5 percent in the first quarter, while Suntech had previously forecast it to be about flat.

Citing robust demand, Suntech raised its 2008 revenue outlook to a range of $2.05 billion to $2.15 billion. It had previously forecast $1.9 billion to $2.1 billion.

The company also increased its target for shipment of photovoltaic cells by 20 megawatts to 550 MW. A megawatt is able to power about 850 homes.

Suntech said it had signed 200 MW of fixed-price contracts for 2009 so far, and the biggest price decline from 2008 levels is about five percent.

"We're already doing better than our guidance for the initial contracts that have been signed," chief strategy officer Steven Chan said in an interview. Previously, the company said it expected prices to fall eight percent to 10 percent next year.

Chan also said Suntech was in talks with US utilities about supplying modules for a big solar power plant, and that it hoped to strike a deal with one in the next six months.

Suntech recently signed a new nine-year, 1.5 gigawatt (GW) silicon supply contracts with ReneSola Ltd of China. The company also made an 18-percent investment in China's Glory Silicon, with which it struck a four-year silicon supply agreement.

Suntech's photovoltaic cell production capacity was 660 MW at the end of the quarter, and the company said it was on track to reach 1 GW of capacity by the end of the year.

The company will start trial production of thin-film solar cells later this year, and expects to ship between 15 and 20 MW of those products next year.

Thin-film solar cells are less costly to manufacture because they do not rely on high-priced silicon. Solar and semiconductor equipment maker Applied Materials Inc is supplying Suntech with its thin-film production lines.

In other news, Suntech named Johnson Chiang chief operating officer, replacing Graham Artes. Artes has become corporate vice president of engineering as well as managing director of KSL-Kuttler, a German equipment company that Suntech recently acquired.