(Solar losers story updated with details from Credit Suisse sector downgrade)

NEW YORK (

TheStreet

) -- Credit Suisse has downgraded the entire solar sector from an overweight to a market weight, and solar shares are feeling the pinch on Wednesday morning.

The headline of the CS note said it all: "Strong supply growth appears set tooverwhelm demand trends."

The biggest losers in early trading were

GT Solar

( SOLR) and

JA Solar

(JASO)

.

Credit Suisse specifically downgraded GT Solar to a hold, in addition to the sector call.

Suntech Power

(STP)

was also at the top of the losers roll in solar on Wednesday morning, but that was also specific to its earnings miss.

>>Suntech Miss: Forex and Wafer Issues

Solar shares have been selling off over the past two weeks after a very healthy months-long rally. Earnings beats from solar companies and bullish guidance about 2011 have not resulted in another leg to the sector rally. Now, with the Eurozone debt fears once again in the headlines and the euro dropping by 7 cents in the past week to a level it hadn't seen since late September, pressure on solar shares is coming from several angles.

Demand keeping up with capacity expansions of 50% has been the big question ahead of 2011. Credit Suisse, notably, was the first to call the optimistic demand scenario for 2010, when pessimism was reigning in solar. Its 12 GW call for solar demand in 2010, which turned out to be conservative, sparked a rally in shares.

"From a cyclical standpoint, we are unable to reconcile the supply growth with our still optimistic demand expectations, and hence we think there has to be a period of stock weakness," Credit Suisse analyst Satya Kumar wrote on Wednesday morning.

CS specifically downgraded GT Solar,

Trina Solar

( SOLR),

ReneSola

(SOL) - Get Report

and

First Solar

(FSLR) - Get Report

from buy to neutral.

CS downgraded JA Solar and Suntech to a sell.

The only remaining Credit Suisse buy in solar is

MEMC Electronic Materials

(WFR)

.

"Following our analysis to reflect recent data points on supply growth, we have grown more concerned that subsidy driven solar market demand cannot keep up with incremental solar supply coming online from mid-2011. Bottom up, new cell capacity is being added at a current monthly rate of 2 GW/month in 4Q10, and just the top-20 producers aspire to increase production by 50% y/y in CY11. Top down we continue to see only a flattish market for demand in 2011. In addition to the top-20, there are new entrants also planning to add production in 2011. As a result, factory utilizations should start falling from 1Q11, and pricing could decline faster than expected," CS analyst Satya Kumar wrote in a solar sector downgrade on Wednesday morning.

Supporting the downgrade of JA Solar and Suntech Power, and the buy on MEMC, Kumar wrote, "We expect that end-demand may still track to a reasonable 10 GW in 1H11 assuming subsidies remain intact, but suspect stocks may remain under pressure in anticipation of excess supply in 2H11. WFR is the only stock where we retain our Outperform, as we expect the company's semiconductor exposure should limit downside."

GT Solar was down 9% in early trading on Wednesday. JA Solar was down 6%, while Suntech was down 5%. The entire sector was in the red, though the level of losses lessened after an opening bell sector swoon.

Some other analysts in solar have been stepping off the gas in recent weeks, saying that conditions in solar were becoming frothy, and that earnings beats were already embedded in the stocks, as was the rise of the euro to above $1.42. A combination of a euro decline and lack of confidence about 2011, therefore, can act in concert to chip away at the previous bullishness for solar stocks.

In the past five days, for example, JA Solar, Trina Solar and Jinko Solar are all down between 22% and 23%. Jinko Solar, which is up a whopping 146% since its debut as an IPO this year, has seen more than 24% of its share price lopped off during the past five trading sessions. Jinko was one of the biggest losers on Wednesday morning, though it isn't in the Credit Suisse universe of solar stock coverage.

Credit Suisse analyst Satya Kumar was not immediately available for comment.

-- Written by Eric Rosenbaum from New York.

RELATED STORIES:

>>Suntech Miss: Forex and Wafer Issues

>>Solar Winners: LDK Rallies Alone

>>Solar Losers: 4 Keys to the First Solar Selloff

>>Solar Losers: 5 Keys to the Power-One Selloff

-- Written by Eric Rosenbaum from New York.

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