BERLIN, Oct 5 (Reuters) - Germany's Social Democrats (SPD) on Wednesday broke off talks with the Greens on forming a coalition in Berlin, raising the prospect of Chancellor Angela Merkel's conservatives joining government in the city state for the first time in 10 years.
That would be an unexpected boost for Merkel, whose Christian Democrats (CDU) have suffered a string of election defeats in the last year, due in part to her much-criticised management of the euro zone debt crisis .
In the Berlin city election last month, the SPD won the largest number of votes but saw its lead slip by 2.5 percentage points from 2006 to 28.3 percent . The CDU gained about 2 percentage points and remained the second-largest party.
Merkel's centre-right federal coalition was, however, stung by another disastrous performance from the Free Democrats (FDP), her junior coalition party, which failed to win a sufficient number of votes to enter the city assembly.
German state elections are widely seen as a verdict on national government.
The talks in Berlin, Germany's biggest city with 3.4 million inhabitants, collapsed over the SPD's plans to extend a motorway which the Greens opposed. "The SPD has, despite far-reaching concessions from the Greens, let the coalition talks fail," said a spokesman for the Greens.
Generally, the Greens are the SPD's preferred partners but a so-called "grand coalition" between the SPD and CDU in Berlin would have the advantage of a bigger, more stable, majority than an SPD-Greens alliance.
Popular SPD Mayor Klaus Wowereit has ruled with the Left party, which includes a large number of former Communists from eastern Germany, for the last 10 years.
SPD national General Secretary Andrea Nahles told the Tagesspiegel daily that "no conclusions should be drawn for the federal level in future" from Wednesday's developments.
The weakness of the FDP nationally has led some commentators to speculate that Germany, with Europe's biggest economy, would be better off with a more stable "grand coalition" that might be less prone to infighting at a time when the government is battling the euro zone crisis.
Merkel led a federal coalition with the SPD between 2005 and 2009. (Reporting By Madeline Chambers; Editing by Mark Heinrich)