Japan's Sharp Corp (6753.T: Quote, Profile, Research, Stock Buzz) and Pioneer Corp (6773.T: Quote, Profile, Research, Stock Buzz) said they would set up a joint venture to merge their optical disc businesses, aiming to beef up one of their focus operations and take a leading position in the growing Blu-ray disc market.

Demand for Blu-ray machines has been picking up since last year, when Toshiba Corp (6502.T: Quote, Profile, Research, Stock Buzz) gave up on its HD-DVD format, allowing the entertainment industry to back a rival optical disc format developed by the Sony Corp-led (6758.T: Quote, Profile, Research, Stock Buzz) Blu-ray camp.

Both Sharp and Pioneer have been battered by the global downturn, which hit demand for flat TVs and other electronics gadgets. The strong yen also eats into their profits made overseas, and they are facing massive restructuring costs.

Sharp, the top shareholder in Pioneer with a 14 percent stake, doubled its loss estimate for the year just ended on Wednesday, while Pioneer said it would exit the flat TV business in February.

Creating an optical disc joint venture with another company was one of the main restructuring measures that loss-making Pioneer unveiled in February.

Optical discs are also used in DVD machines, but makers have been hit by sharp price falls amid intense competition.

The new joint venture, which aims to start operations in October, will develop, produce and sell optical disc drives, recorders and players.

Before the announcement, shares in Sharp, the world's No. 3 LCD TV maker after Samsung Electronics Co (005930.KS: Quote, Profile, Research, Stock Buzz) and Sony, closed up 10.7 percent at 900 yen, and Pioneer jumped 18.6 percent to 230 yen.

They outperformed a 3.7 percent rise in the benchmark Nikkei average .N225.

(Reporting by Sachi Izumi)