* Moody's during break puts Japan on review for possible credit downgrade
* WSJ article on Greece debt helps mood in morning
* Solar power stocks gain on German plan to shut nuclear reactors
* Tepco down on S&P cut in its rating to junk status
By Ayai Tomisawa
TOKYO, May 31 (Reuters) - The Nikkei average rose on Tuesday with buying in futures encouraged by predictions of strong industrial output in the coming months, while solar-energy shares gained on news that Germany will shut all its nuclear reactors by 2022.
Credit rating agency Moody's during the midday break placed Japan's sovereign ratings on review for possible downgrade, citing concerns about a weak policy response to faltering economic growth prospects. [ID:nT9E7GH024]
The announcement followed a similar move last week by ratings agency Fitch which had only a minimal impact on stocks. [ID:nL3E7GR1A6]
Japan's industrial output rose 1.0 percent for April, below analysts' median forecast of 2.8 percent, but manufacturers sharply increased their forecasts for May, predicting output will rise 8.0 percent compared with the previous 2.7 percent forecast, data from the Ministry of Economy, Trade and Industry showed. [ID:nL3E7GU0JC]
Companies expect the recovery to continue in June with production seen rising 7.7 percent, in a sign they are making headway in restoring supply chains and bringing back production lines idled by the disaster and power blackouts.
"Investors got past the weak data in April and cheered the strong outlook by buying futures," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.
HELPING SENTIMENT
Also helping sentiment was a Wall Street Journal report saying that Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, citing people familiar with the matter.
The report triggered a rise in the euro, with the currency trading above 116 yen on Monday. Euro-sensitive stocks outperformed, with Mazda Motor rising 2.0 percent to 206 yen and Canon Inc gaining 1.6 percent to 3,885 yen.
Meanwhile, solar-energy stocks outperformed on news that Germany plans to shut all its nuclear reactors by 2022, a decision announced on Monday by Chancellor Angela Merkel's ruling coalition in a policy reversal prompted by the Fukushima radiation scare in Japan. [ID:nLDE74T0GY]
"Most of these stocks are relatively small by market cap, so they may not impact the index significantly, but if such buying by domestic investors draws foreign buying there may be further rises in the index," Mizuho's Segawa said.
Panel-maker Sharp Corp rose 3.0 percent to 762 yen while panel equipment manufacturer Ulvac surged 2.9 percent to 2,073 yen.
The benchmark Nikkei rose 1.2 percent to 9,615.54 at the midday break. The broader Topix index gained 1.0 percent to 831.60.
The Nikkei has traded narrowly between 9,400 and 9,600 for the past two weeks. Worries about a slowdown in the U.S. economy and European debt problems have prevented sharp gains, while attractive valuations have lent support.
"Until this Friday, dip-buying may help the market somewhat as 64 percent of shares listed on the Tokyo Stock Exchange's main board are trading at or below their book value," said Hiroichi Nishi, general manager at SMBC Nikko Securities.
Shares on the Tokyo Stock Exchange's main board are trading at around book value, while stocks in the S&P 500 trade at about 2.2 times their book value, according to Thomson Reuters Starmine.
Tokyo Electric Power Co dropped 3.4 percent to 315 yen after ratings agency Standard and Poor's cut its credit rating to junk status on Monday, saying the utility's lenders were more likely to be forced to write off debt as part of a plan to compensate victims of the Fukushima crisis. [ID:nL3E7GU1IO] (Editing by Joseph Radford)