UPDATE 3-German coalition agrees 50 bln euro stimulus plan

(Updates with quotes, details, reaction)

By Kerstin Gehmlich

BERLIN Jan 12 (Reuters) - Germany's ruling coalition reached agreement on Monday on a new economic stimulus package worth 50 billion euros aimed at helping Europe's largest economy through what could be its worst post-war recession.

Chancellor Angela Merkel's conservatives and their Social Democrat (SPD) partners agreed on the mixture of investment spending and tax cuts in six hours of negotiations in the chancellery, coalition leaders told journalists.

"We have a deal," SPD parliamentary floor leader Peter Struck told journalists waiting in freezing temperatures outside Merkel's offices. "It's a good day for Germany."

The parties narrowed differences on tax relief measures -- the final sticking point -- during the talks and agreed a set of compromises that allowed all sides to claim victory in the battle just eight months ahead of September's federal election.

The focal point of the 50 billion euro ($67 billion) investment programme will be in infrastructure projects and education. There will also be incentives worth 2,500 euros for new car purchases, the leaders said.

They also agreed to one-off payments worth 100 euros to families for every child in Germany -- a consumption-boosting measure that was exactly half the amount the SPD had sought.

The entry level tax rate will go down slightly by one point to 14 percent while tax-free thresholds will be raised slightly.

"We've agreed on this package for jobs and stability that will have a volume over two years of around 50 billion euros," said Volker Kauder, the CDU's parliamentary floor leader.

"This package will help us get through the economic crisis."

Worker health insurance contributions will be lowered.

BUDGETARY DEFICIT

The government parties also agreed on measures to help German firms, with coalition sources saying a package including credit guarantees could amount to up to 100 billion euros.

Merkel and Vice Chancellor Frank-Walter Steinmeier will present the full details on Tuesday.

Before the talks, the two sides were ready to agree on issues including boosting infrastructure projects and schools. There had been a lingering division on tax cuts, which some politicians feared could lift Germany's deficit above EU limits.

The coalition parties were eager to arrest a recession that many economists say may be the deepest since World War Two, but they were also promoting competing political agendas ahead of the election that made it hard to agree on a plan.

"You get the feeling this was a compromise that everyone got a little bit of what they wanted," Winfried Fuest, an economist at the Institute der deutschen Wirtschaft, told Phoenix television.

"They're just spreading a little bit all around. The tax cut side is actually a bit disappointing. It's hardly an improvement on the first package," he added.

The government agreed a first package in November, which it said was worth 31 billion euros, but this was attacked by many at home and abroad as too modest. Critics also complained the figure was massaged and included previously announced measures.

However, the new plans have sparked budget concerns.

The coalition government has prided itself on balancing the public finances since 2005 but the new stimulus plan, combined with the burdens of higher unemployment and waning tax revenues risk undoing that progress ahead of the September election.

For a factbox on the package, click on [nLC284134] (Writing by Erik Kirschbaum; Editing by Ralph Boulton)