Merkel puts campaign on hold, travels to G20 summit

BERLIN (Reuters) - German Chancellor Angela Merkel interrupted her election campaign on Thursday and traveled to a G20 summit in the United States that she hopes will remind voters of her past triumphs on the international stage.

Merkel looks on track to win a second term in a federal vote on Sunday, but needs to shore up support in the coming days to avoid being forced into another "grand coalition" with her center-left rivals, the Social Democrats (SPD).

Her goal is to form a new center-right partnership with the business-friendly Free Democrats (FDP), a coalition she says would be better placed to get Europe's largest economy revving again after its deepest recession since World War Two.

A report by the Munich-based Ifo institute on Thursday showed German business sentiment rose to its highest level in a year in September, but the gains fell short of expectations, denting hopes for a robust recovery.

The next German government will have to rein in a surging budget deficit, cope with rising unemployment and confront fragile banks that are paring back their lending.

The G20 meeting in Pittsburgh, which will look at new financial market regulations to prevent future crises, offers Merkel an opportunity to show she is serious about the economy and to hobnob with leaders like U.S. President Barack Obama.

That could remind the electorate of the international leadership she showed in her first years in office, when she brokered deals on climate change at the European Union and G8 level, earning the nickname "Summit Queen."

"This summit comes at the right time for Merkel," said Gerd Langguth, a political scientist at Bonn University and biographer of Merkel. "It will show her in the role of leader, mingling with other heads of state and tackling an issue that voters care about -- the economy."

Speaking before leaving for the summit, Merkel said she would push for tighter regulation of the financial institutions whose faulty bets are blamed for unleashing the worst economic crisis since the Great Depression.

TERROR THREAT

Germany's foreign minister said on Thursday he saw no grounds for a U.S. travel alert urging Americans in Germany to be vigilant because of al Qaeda threats surrounding the poll.

Germany nevertheless stepped up security at train stations and airports last weekend, citing a heightened risk as militant groups could use the election as a pretext for attacks.

An al Qaeda militant issued two videos threatening Germany with a "rude awakening" if its citizens voted for parties who would continue to keep German troops in Afghanistan.

Final polls released this week before the vote showed Merkel's conservative bloc -- her Christian Democratic Union (CDU) and the Bavarian Christian Social Union (CSU) -- with a 9-11 point lead over the SPD.

That advantage suggests Merkel has a good chance of winning a second term on Sunday.

But whether she will be able to secure the center-right coalition that eluded her in 2005 is far from certain. Polls show that her conservatives, together with the FDP, hold a meager 1-3 point lead over the other main parties in parliament -- the SPD, environmentalist Greens and Left party.

Analysts fear that the most likely alternative, another awkward grand coalition with the SPD, would be less stable and more prone to infighting than that of the last four years.

(Additional reporting by Madeline Chambers and Dave Graham; editing by Sonya Hepinstall)