UPDATE 1-New German coalition would look to cut state stakes

* Centre-right coalition would look at cutting govt stakes

* Talks enter crucial phase with leaders; at odds on tax

* Parties agree on tweaks to unemployment benefits

(Adds detail on agreements so far)

By Gernot Heller and Thorsten Severin

BERLIN, Oct 14 (Reuters) - A German centre-right government under Chancellor Angela Merkel would aim to sell some state holdings in companies, documents seen by Reuters showed on Wednesday as leaders met to try to forge a coalition agreement.

Party leaders, including Merkel and Guido Westerwelle, head of the pro-business Free Democrats (FDP), are taking part in the negotiations to nail down a policy agenda for the next four years and divide up cabinet posts.

The parties, which announced they had agreed to tweak unemployment benefits, are expected to reach a consensus on some form of tax relief, less direct state control and an extension of the lives of some nuclear plants.

A paper drawn up by a working group on economic policy said the new coalition would review Germany's state holdings.

"The state's stakes in industrial companies and financial institutions should be limited to as short a period as possible," said the paper.

If approved by Merkel, who heads the conservative Christian Democrats (CDU), and the leaders of its Bavarian sister party, the Christian Social Union (CSU), and the FDP, the plans could lead to several sales and help plug a bulging budget deficit.

The move may be aimed at quickly shedding stakes in banks acquired in the last year, such as Commerzbank (CBKG.DE) and Hypo Real Estate HRXG.DE, due to the financial crisis.

Another candidate for privatisation could be rail operator Deutsche Bahn [DBN.UL], whose listing was shelved last year due to weak markets. The government also owns about one third of Deutsche Telekom (DTEGn.DE) and Deutsche Post (DPWGn.DE).

After about three hours of talks, the parties said they had agreed to help unemployed people by letting them put aside more of their personal savings for a pension. Until now, the jobless had to use up most of their savings before claiming benefits.

The step had been in all three parties' election programmes.

THORNY ISSUES

Heading into the meeting earlier, senior party members said they could see progress.

"It is going well, we will take as long as we need for a really good result," Westerwelle told reporters. Merkel wants the new government in place by Nov. 9, when Germany celebrates the 20th anniversary of the fall of the Berlin Wall.

However, there are still tricky issues, such as tax, which a working group will address from 6 p.m. (1600 GMT). Although both parties have said they want tax relief, they are at odds over the amount and the timing of it.

"We said before the election there would be tax cuts and I'm sure we'll agree them," said FDP general secretary Dirk Niebel.

The FDP campaigned on cuts of up to 35 billion euros ($52 billion) but have since acknowledged the weak state of public finances may make that difficult, perhaps signalling tax relief will end up closer to the conservative pledge of 15 billion.

Goldman Sachs said the FDP seemed concerned that few of the cutbacks in its manifesto would be in the final deal.

"The chances for a significant reduction in the tax burden for households by Jan. 2010 are slim," economist Dirk Schumacher said in a research note, adding the FDP may save face by agreeing on a general overhaul of the tax system. (Writing by Madeline Chambers; Editing by Louise Ireland)