German chancellor urges compromise in coalition talks

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Talks between Germany's ruling Christian Democratic Union (CDU) and the centre-left Social Democratic Party (SPD) on forming a new government are yet to yield an agreement after a session that lasted all night and into Wednesday.

Which party runs which ministry isn't decisive, she said.

The left-of-centre Social Democrats (SPD) claimed the prized finance portfolio in a new grand coalition deal settled on Tuesday, a ministry that will be key to driving reforms in the European Union's single currency eurozone.

The mass influx drove the rise of the far-right Alternative for Germany (AfD) party which scored nearly 13 percent in September elections.

The Social Democrats (SPD), burnt from four years as junior partners in the last government, came to the table with much more leverage this time, as Merkel was out of options.

Merkel 's fate now lies in the hands of the SPD, as Schulz has promised to give his party's 460,000 members the final say on whether to accept the coalition pact.

The CDU/CSU bloc and SPD reached a tentative coalition deal on January 12, following several weeks of preliminary discussions, while the SPD's Congress on January 21 backed entering coalition negotiations with the conservatives.

Gerd Mueller, senior member of Merkel's Bavarian Christian Social Union (CSU) allies, also struck an optimistic tone in the evening: "I do think that this will now happen".

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Aware her political fate hung in the balance, Dr Merkel reached out to the SPD with policies attractive to their voters: stricter rent caps in major cities; a two billion euro social housing fund and grants to help young families buy a home; and major investment in education, old-age care and broadband and mobile networks.

Leaders will go before the press in the early afternoon to present their coalition agreement, which stalled on bad-tempered disagreement on health and labour reform.

The coalition deal could be "the foundation of a good and stable government, which our country needs and many in the world expect of us", she added.

Merkel at first turned to two smaller parties, the Free Democrats and Greens, to form a new government.

SPD has gained the top three ministries - Foreign, Finance and Labor and Social Welfare - in the new German coalition, dpa later reported.

After weeks of negotiations, Germany's main political parties have finally reached an agreement to govern together. SPD boss Martin Schulz, who previous year led the party to its worst national election result since World War II, looks headed for the Foreign Ministry. Schulz, who had previously ruled out renewing the "grand coalition" of Germany's biggest parties, then reversed course but still faces resistance from parts of his party.

Merkel, meanwhile, will stay atop a government whose center of gravity has gradually shifted from cabinet departments to her seventh-floor office at the concrete-and-glass Chancellery across from the Reichstag parliament building.