By Rachel Chang - Analysis

NEW YORK (Reuters) - While green shoots of economic recovery are appearing only tentatively, green stocks are showing no such hesitation.

Since March, clean energy stocks have put together a mighty rally, outpacing the U.S. equities market as a whole. While some see it as a harbinger of increased demand for companies providing cleaner sources of energy, others say it merely reflects the benefit of being on the right side of political trends, thanks to initiatives from China, the United States and other countries.

Three major indexes tracking green energy companies have risen sharply of late. The U.S.-only Wilderhill Clean Energy Index, comprising 51 companies, is up 72 percent since a March 9 low. Its global counterpart, the Wilderhill New Energy Global Index, which tracks 88 companies in 21 countries, is up 66 percent in the same period.

The CleanTech Index, which tracks a broader group, including industries like sustainable agriculture, is up 57 percent. By comparison, the S&P 500 is up 35 percent since hitting a 12-year low on March 9.

Analysts see some of the rally as a corrective recovery after green stocks took a drubbing last year. Hammered by the drop in the price of oil and the credit freeze, the Wilderhill indexes plunged 70 percent, and the Cleantech Index 50 percent, in 2008. The indexes are still off 2007 peaks.

The stocks in question tend to be volatile small-cap and mid-cap names, and so it isn't rare for stocks to move 20 percent in a day -- the biggest company in the domestic Wilderhill index is Applied Materials Inc, worth $14 billion. The stocks are also not widely followed by Wall Street research, causing some swings in pricing.

"When the tape is down one percent, the group is down three percent," says Rob Stone, an analyst at Cowen and Co in Boston.

Stone is bullish on solar stocks, thanks to plenty of initiatives likely to drive demand.

The climate change bill passed by the U.S. House a week ago and now being considered by the Senate could be a boost to all renewables. Even without that, January's U.S. stimulus package allotted $37 billion to clean technology companies, money that should start to flow by the fall.

Large-scale solar power plants are expected to begin construction in coming years in the United States, though the bigger companies, such as First Solar Inc and SunPower Corp, are likely to get most of the business.

China, meanwhile, is set to announce a national feed-in tariff this year that would open a vast market to providers. U.S.-listed shares of Chinese solar companies like Yingli Green Energy Holding Co and Trina Solar Ltd have surged in anticipation.

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Still, some say the green stocks rally is a house built on the shifting sands of political chance.

"Rather than being judged by consumer preference, these technologies are dependent on temporary political majorities for their viability," says Robert Bradley Jr., chief executive of the Institute of Energy Research, a conservative non-profit.

Cost has also been an issue. Solar is still more expensive than fossil fuels, though Stone points out that polysilicon, the main raw material in photovoltaic solar panels, was trading at $400 a kilogram ($180 a pound) a year ago, and is now $60 a kilogram.  Continued...