Merkel extends lead after final vote in Germany

DRESDEN, GERMANY - Angela Merkel's conservatives extended their lead over Gerhard Schroeder's Social Democrats after final voting in Germany's election, strengthening their hand in power-sharing talks.

The conservatives won an extra parliamentary seat to push their total to 226, while Chancellor Schroeder's SPD stayed at 222, the chief election official said after counting ended in central Dresden, the last area to cast ballots in Germany.

Voters in the district brought the federal election to an end two weeks after the rest of the country went to the polls. The Dresden vote had been delayed due to the death of a local candidate.

After voting in Germany's 298 other districts on September 18, the conservatives held a provisional three-seat advantage.

Dresden's Christian Democrat candidate will join Merkel's conservatives when the Bundestag lower house meets on or before October 18, although they are unlikely to have forged a government by then.

Germany's electorate has produced the most inconclusive result in postwar history, with no majority either for the centre-right or the centre-left. The hung parliament has pushed the two main parties to explore forming a "grand coalition".

However, the parties have clashed over whether Merkel or Schroeder should be chancellor.

The SPD has rejected media reports that Schroeder would step down at a party meeting on Monday, a public holiday in Germany to celebrate reunification.

"We are for Gerhard Schroeder becoming chancellor, but we will talk about the whole constellation in our negotiations," SPD chief Franz Muentefering said in words less forceful than before.

He added that the parties were likely to hold further exploratory talks after a planned meeting on Wednesday and then would have to decide whether to forge a coalition.

The conservatives have argued that, as Germany's largest party, they should determine who leads the country and believe confirmation of their albeit slim advantage should prompt Schroeder's exit.

Volker Kauder, general secretary of the Christian Democrats, said Sunday's result had strengthened both the party and Merkel.

"I am looking to rational forces in the SPD to recognise this and free themselves from Gerhard Schroeder," he said.

Financial markets were initially cool, but have warmed to the prospect. Share prices have climbed to 3-1/2 year highs this week.

The two parties, who will hold a third round of meetings on Wednesday, would command solid majorities in both houses of parliament. The coalition could put German finances in order and possibly reform the country's tax system.

But the negotiations could take many weeks.

- REUTERS