Japan pledged to prop up loss-making chip maker Elpida Memory Inc <6665.T> with up to $1.7 billion in public and private capital and loans, the country's first capital injection in a company since the financial crisis.

The 160 billion yen ($1.7 billion) aid package includes a possible 20 billion yen capital injection from Taiwan Memory Company, which was set up by Taiwan to save its own chip sector and had chosen Elpida as a technology partner.

Elpida and other makers of dynamic random-access memory (DRAM) chips, used mainly in PCs, have tumbled into the red due to falling prices and weak consumer demand, compounded by the global recession.

Elpida, the world's fourth-biggest maker of DRAM chips, becomes the first Japanese company to get aid under a scheme that makes public funds available to businesses hit by the global financial crisis.

This shows that the government is determined to support the sector, that they are determined not to let Elpida fail, Hajime Kurabayashi, a strategist at Okasan Securities said on Tuesday.

Elpida is Japan's last hope in PC memory chips in an industry dominated by South Korea's Samsung Electronics Co Ltd <005930.KS> and Hynix Semiconductor Inc <000660.KS>.

Elpida is Japan's only DRAM maker, and it has been hit by extremely severe conditions amid the global economic slump, despite its superior technology, Trade Minister Toshihiro Nikai told reporters.

Elpida's shares gained 3 percent, having risen more than 60 percent over the past three months, helped by media reports on the government aid. The benchmark Nikkei average <.N225> has added about 20 percent over the same period.

Elpida is scheduled to issue 30 billion yen in preferred securities to the state-owned Development Bank of Japan in August, which will also extend 10 billion yen in loans, Japan's trade ministry said.

Private banks will also provide 100 billion yen in loans, the ministry said.

($1=96.06 Yen)

(Reporting by Mayumi Negishi and Taiga Uranaka; Editing by Edwina Gibbs and Anshuman Daga)