UPDATE 2-Germany can only pay market rate for HRE - Merkel

* JC Flowers partner says Flowers aims to remain stakeholder

* Says could bring in own expertise as investor to help HRE

* Head of SoFFin says will not agree to Flowers' proposal

* German govt and JC Flowers to meet on Sunday

(Adds comments from head of German rescue fund SoFFin)

BERLIN, March 14 (Reuters) - Chancellor Angela Merkel said on Saturday the German state would only be able to pay a price that conformed with usual market values for stricken lender Hypo Real Estate HRXG.DE.

German government officials will meet with stakeholder JC Flowers on Sunday in a fresh attempt to get the U.S. investor to give up his stake in Hypo Real Estate.

"What we cannot do now, is pay prices which are not consistent with the values usual in the market," Merkel told Deutschlandfunk radio.

The government has been negotiating with Flowers for weeks in an attempt to find a solution to acquire control of the bank, which has had to be propped up with more than 100 billion euros ($128.7 billion) of guarantees, mostly from the state.

The government has been encountering opposition from the group of investors led by JC Flowers which wants compensation for their stake in Hypo of roughly 24 percent and sees a price of nearly 3 euros per shares as fair. [ID:nLJ827929]

Hypo Real Estate shares closed at 0.87 euros on Friday, up 13 percent, giving the firm a market value of 183.64 mln euros.

Ravi Shankar Sinha, partner at JC Flowers and in charge of its European operations, underlined in an interview with German newspaper Boersen-Zeitung on Saturday that Flowers would rather remain invested in Hypo Real Estate.

"We have a lot of expertise and we can use our know how to help solve some difficult problems in the bank's balance sheet," Sinha said. "We don't want money from the state but (to) continue to be investors," he added.

On Friday, JC Flowers laid out a blueprint to rescue the bank. It said Hypo had a hole in its balance sheet of between 6 and 10 billion euros and the government could help fill it by buying new shares issued by the bank. [ID:nLD714190]

Under the proposal the government would end up with a stake of 75 percent plus one share in Hypo Real Estate.

But Hannes Rehm, chief executive of Germany's bank rescue fund SoFFin, which will also attend Sunday's meeting, told Frankfurter Allgemeine Sonntagszeitung he would not agree to Flowers' proposal. "We can't engage in this," he told the paper.

He underlined the need for the bank's nationalisation, which required that single shareholders would not have a say anymore.

"I would go as far as to say that not rescuing this bank would have worse consequences than the failure of Lehman Brothers," he said in an article to be published on Sunday.

The cabinet approved a draft law last month allowing the forced nationalisation of banks and said it would use the new power to take control of Hypo Real if necessary.

Merkel said she expected the debate on the last resort options for HRE to be having an effect on Flowers' willingness to agree on certain issues, but she said she did not know how Sunday's talks would develop.

(Reporting by Kerstin Gehmlich and Eva Kuehnen in Frankfurt; Editing by Keiron Henderson)