Merkel: State defeat hasn't weakened us before coalition talks

BERLIN (Reuters) - German Chancellor Angela Merkel on Monday played down suggestions that a regional election defeat for her Christian Democrats (CDU) had made her job of forming a three-way national coalition harder. The Social Democrats (SPD) won Sunday's vote in the northern region of Lower Saxony with 36.9 percent. Merkel's conservatives slumped to 33.6 percent - roughly in line with forecasts but their poorest showing in the rich agricultural province in nearly six decades. "I don't see the Lower Saxony election result as weakening us in this (coalition) task," Merkel said, adding that regional issues had played a big role in the campaign there. Lower Saxony is home to carmaker Volkswagen , which is enmeshed in a diesel emissions scandal. Three weeks after Merkel's conservatives recorded their worst national election result since 1949, the chancellor is about to begin what look set to be tricky coalition discussions with the liberal Free Democrats (FDP) and the Greens. Merkel said her conservative bloc was heading into the talks knowing it was the strongest of the three groups, while acknowledging negotiations would be challenging. "We'll have sufficient conflicts anyway. No one is under any illusions about that," Merkel said. Policy areas over which the three parties are expected to clash include migration, climate protection and euro zone reform. Carsten Nickel, deputy research director at Teneo Intelligence, said the weak CDU result would particularly worry its Bavarian sister party, the Christian Social Union (CSU), which faces a regional election next year. "The CSU will fear that Lower Saxony demonstrates that the popular backlash against Merkel's choices in the 2015 migration crisis is not yet over," Nickel said, referring to her decision to operate an open-boarders policy that allowed more than a million refugees in Germany. After the anti-immigrant Alternative for Germany (AfD) took almost a million voters from the conservative bloc in September's national election, the sister conservative parties put a long-running internal dispute to bed by agreeing to limit numbers of migrants coming to Germany. (Reporting by Michelle Martin and Michael Nienaber; Writing by Michelle Martin; editing by John Stonestreet)