* SPD leaders unanimous in supporting talks with Merkel
* Formal negotiations expected to begin on Wednesday
* Parties say compromise possible on minimum wage
German Chancellor Angela Merkel's conservatives and the centre-left Social Democrats (SPD) agreed on Thursday to begin formal negotiations on a grand coalition government that is likely to ramp up public investment and introduce a minimum wage.
Leaders from both camps told reporters after a three-hour meeting in Berlin that there was enough common ground to try to reprise the right-left partnership which ruled Germany between 2005 and 2009, in Merkel's first term.
Crucially, SPD Chairman Sigmar Gabriel said senior negotiators from his party had been unanimous in supporting talks with Merkel.
That increases the likelihood that Gabriel will be able to win over those in his party who have argued against entering another coalition with Merkel since the SPD came a distant second to her conservatives in an election last month.
If, as expected, he secures the backing of some 200 senior SPD members at a meeting set for Sunday, full negotiations to agree coalition policies and cabinet posts in a new government would begin on Wednesday. They could last more than a month.
"We are convinced that we can find sensible solutions for both sides, and most of all for the country, even on disputed questions," Gabriel said.
German voters, international investors and Berlin's European allies have mostly been expecting a grand coalition. Few expect an eventual partnership deal with the SPD to greatly alter Merkel's cautious domestic and foreign policy agenda.
The chancellor's conservative bloc - her Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU) - emerged as the strongest political force in the Sept. 22 election. But they fell several seats short of a parliamentary majority, forcing them to seek a coalition ally.
The SPD was seen as the most likely partner from the start, but its experience during the last grand coalition has tempered the enthusiasm of grassroots members. In 2009, after four years of governing with Merkel, the SPD plunged to its worst election result since World War Two.
The chancellor flirted briefly with the idea of a coalition with the environmentalist Greens. But when those talks broke down earlier this week, a grand coalition seemed all but inevitable.
Such a partnership would enjoy an overwhelming majority in the Bundestag lower house of parliament and find it easier to push legislation through the Bundesrat upper house, where the governments of Germany's 16 federal states are represented.
On central themes, such as the euro zone crisis and a plan to give up nuclear energy, the differences between the parties are small.
More contentious is the SPD's demand for a nationwide minimum hourly wage of 8.50 euros. But even on this, participants in Thursday's inter-party talks indicated that compromise was possible.
"We have a joint goal of seeing a sensible minimum wage ruling. I am sure we will find a result," said Hermann Groehe, the CDU general secretary.
Although the participants stressed in public that no firm policy compromises had yet been sealed, sources close to the talks said the two sides had gone into some detail on what a minimum wage deal might look like.
A loose agreement on boosting public investment in infrastructure, education and research had also been reached, according to the sources. The SPD has wanted to fund such investments through higher taxes on the rich but the CDU/CSU has ruled this out and must now propose other sources of revenue.
In the last round of exploratory talks on Monday, the parties had appeared to make little progress in overcoming their differences.
But the meeting on Thursday was a smoother affair. Powerful regional SPD leader Hannelore Kraft, who has expressed doubts about a grand coalition since the election, made clear to the group that she now supported such a partnership.
Alexander Dobrindt of the CSU, with whom Kraft had clashed on Monday, described an atmosphere of "clear mutual trust" and said the parties had agreed that growth, financial stability and employment would be priorities for a new government.
"We believe that we will be able to find common answers to these huge themes in a joint coalition pact," he said. "And that is why it is right to enter coalition talks on Wednesday."