FRANKFURT - Solar company Conergy paved the way for striking a refinancing deal by the end of March thanks to a breakthrough settlement with wafer supplier MEMC, its CEO told Reuters on Monday.

The news led to a relief rally in the highly volatile penny-stock, rising as much as 31 percent on Monday to 1.019 euros a share. At 0956 GMT, shares in the company were 19.3 percent higher.

We have laid the foundation for talks with the banks. We aim for a refinancing deal by the end of the first quarter, Dieter Ammer said in an interview.

Conergy late Sunday said it reached an out-of-court settlement regarding a contract dispute with U.S. peer MEMC.

The disagreement centred around a contract that forced Conergy to buy wafers at above market rates.

Under the terms of a new agreement, Conergy can cut the minimum quantity of wafers it must buy over the remaining running time of the contract.

Ammer, who will step down from his post in mid-2010, said that the agreement will positively impact Conergy's 2009 full-year results by 34 million euros ($48.04 million).

In the first nine months of 2009, the company accumulated a net loss of 79 million euros, burdened by costs for its ongoing restructuring process and an industry crisis that led to a slump in product prices.

Conergy's move comes shortly after German peer Q-Cells last month struck a similar deal with Chinese rival LDK, in a sign that solar companies are under intense pressure to renegotiate supply contracts concluded at the height of the solar boom, when prices were much higher.

However, Ammer said that business in the industry was slowly recovering after an appalling year.

It is true that the fourth quarter in the industry was significantly more active than the previous quarter. And we assume that this will be the case at our company too, Ammer said, adding that political pressure could deal a blow to the crisis-ridden sector.

Germany, which houses the world's biggest solar market, last week proposed to slash feed-in tariffs for solar power by at least 15 percent from April, sparking large criticism in an industry that the government sees as overly subsidized.

In general, we think an adjustment makes sense as we do not want to remain a subsidized industry forever. But the size and the speed of the proposed cuts will endanger the sector. This would be sledge hammer regulation, Ammer said.

($1=.7078 euros)

(Reporting by Christoph Steitz; Editing by Mike Nesbit)