* Toshiba to spend $160 mln to set up test line - Nikkei

* Shares up 3.5 pct vs sector index’s 0.8 pct gain (Adds Toshiba comments, background, share price)

TOKYO, April 2 (Reuters) - Toshiba Corp 6502.T plans to spend 15 billion yen ($160 million) this year to build a test production line for advanced flash memory chips, the Nikkei business daily said, sending shares of the Japanese electronics maker higher.

The world's No.2 NAND flash memory maker behind Samsung Electronics Co 005930.KS has already ordered chip-making equipment from ASML ASML.AS to produce microchips with circuitry widths of less than 25 nanometres, the Nikkei said.

Narrower circuitry allows semiconductor companies to pack more storage capacity on a smaller piece of silicon, cutting per-chip production costs.

Toshiba currently makes NAND flash memory chips with circuitry widths of 32 and 43 nanometres. One nanometre is a billionth of a metre.

Unlike dynamic random access memory (DRAM) chips used in personal computers, NAND flash memory can retain data even after power is turned off, making them an ideal memory device for portable electronics such as mobile phones and digital cameras.

Toshiba plans to begin output of NAND chips with circuitry widths in the upper 20 nanometre range soon, while production of chips with circuitry widths in the lower 20 nanometres is slated to start as early as 2012, the Nikkei said.

A Toshiba spokeswoman said the company plans to start commercial production of NAND flash memory chips with circuitry widths somewhere between 20 and 29 nanometres in the second half of 2010, but it has not been decided whether the circuitry will be wider or narrower than 25 nanometres.

The spokeswoman said Toshiba is in talks with the Netherlands’ ASML on the possible purchase of a prototype of cutting-edge chip-making equipment that uses extreme ultraviolet (EUV) lithography to form narrower circuitry onto silicon wafers.

Shares of Toshiba rose 3.5 percent to 504 yen, outperforming the Tokyo stock market's electrical machinery index .IELEC.T, which gained 0.8 percent. (Reporting by Bijoy Koyitty in Bangalore and Kiyoshi Takenaka in Tokyo; Editing by Chris Gallagher)