LOS ANGELES (Reuters) - Solar stocks rallied on Wednesday after the U.S. Senate voted to continue tax breaks worth $18 billion for renewable energy sources, including a generous eight-year extension for solar.

Top gainers included top U.S. solar company SunPower Corp SPWR.O, which soared as much as 12.7 percent to $98.60 on the Nasdaq. Solar cell maker Evergreen Solar Inc ESLR.O rose as much as 14.5 percent to $6.58 and solar installer Akeena Solar Inc AKNS.O gained as much as 25 percent to $5.33.

Chinese solar companies also rallied on the news. Yingli Green Energy Holding Co Ltd YGE.N, also boosted by the announcement it would supply 1.4 megawatts (MW) of solar panels to a Rutgers University campus, was up 8.6 percent at $13.59 in early afternoon trading.

Trina Solar Ltd TSL.N shares rose 6.8 percent to $29.28, helped by news that it would provide 2.4 MW in cells for a project in Atlantic City, New Jersey, in what it said would be the largest single rooftop solar installation in the United States.

Federal renewable energy tax credits, which had been set to expire at the end of this year, are considered critical to helping solar power compete with electricity from dirtier sources such as coal and fossil fuels. The Senate’s failure to extend the subsidies on eight occasions earlier this year put a major damper on solar stocks as investors fretted a lack of government support would cause U.S. solar demand to slump next year.

“The solar industry wins big in this bill,” Raymond James analyst Pavel Molchanov said in a client note, pointing to the bill’s provision allows utilities to claim the tax breaks.

In addition, the bill eliminated a $2,000 cap on tax credits for residential solar systems.

“The bill therefore opens the door to vastly greater domestic adoption of solar power within the residential and utility markets,” Molchanov wrote.

The renewable tax credits measure, which is expected to be approved by the House of Representatives and President George W. Bush, gives businesses a 30 percent tax credit to offset the development costs of solar and other clean energy projects.

The solar tax credit extension will create 440,000 permanent jobs in the United States and generate $232 billion in new investment, according to a recent study by Navigant Consulting Inc.

Analysts agreed that a U.S. tax credit extension removes a key concern for solar investors. But looking ahead, the industry still faces high raw material costs, declining prices for solar panels, a pullback in government subsidies in big markets such as Spain and Germany and global economic turmoil -- all of which could continue to weigh on solar stocks.

“Investors may wait for less uncertainty before jumping back into the sector,” Oppenheimer analyst Sam Dubinsky wrote in a client note.