* German SPD grassroots members decide whether to join Merkel
* New German government could be in office on Tuesday
* Referendum results expected later on Saturday
Germany's Social Democrats began counting 330,500 postal ballots on Saturday sent in from grassroots members who are deciding whether their party should join a coalition with Chancellor Angela Merkel's conservatives.
The results of the referendum are expected to be announced between 4 p.m. and 6 p.m. (1500-1700 GMT) by SPD chairman Sigmar Gabriel, who has fought an uphill battle to convince party members to back the deal with their arch rivals.
Merkel's Christian Democrats (CDU) and their Bavarian sister party, the Christian Social Union (CSU), won the Sept. 22 election but fell short of a majority. They need a partner and spent much of the last three months negotiating a coalition agreement with the SPD, a distant second in September.
To overcome the deep scepticism about joining forces with Merkel in a "grand coalition", Gabriel took the unprecedented step of giving all 475,000 SPD members the chance to vote on it. Conservatives already approved the deal.
"I'd expect about 70 percent to back the agreement," SPD treasurer Barbara Hendricks told reporters at a warehouse in Berlin where the ballots were being counted. A truck delivered crates of postal ballots just after midnight and 400 volunteers began counting the votes at around 10 a.m. (0900 GMT).
If, as is now widely expected, the centre-left SPD votes in favour of the "grand coalition" agreement, the coalition agreement would be signed on Monday and Merkel's new government could be sworn into office on Tuesday.
Despite her new government having a four-fifths majority in parliament, Merkel's third four-year term could be more difficult and more domestically focused than her first two terms that were heavily shaped by the global financial crisis and turmoil in the euro zone.
The SPD, still struggling to overcome the steep drop in support from the 2005-09 "grand coalition" under Merkel, could prove to be less pliant junior partners this time around.
Thanks to what analysts called a clever strategic move to ask grassroots members to vote on the coalition, the SPD forced Merkel to accept many of the SPD's leftist policies even though the conservatives scored 41.5 percent of the vote in September compared to 25.7 for the SPD.
The SPD will nevertheless get six of the 15 cabinet posts - expected to be formally named on Sunday. SPD sources on Friday said Gabriel would be Vice Chancellor and Economy Minister while Frank-Walter Steinmeier would be Foreign Minister again.
SPD sources added that Wolfgang Schaeuble would remain finance minister.