* Chancellor re-elected party leader with record 98 pct of votes
* Merkel says only CDU can steer Germany through "stormy waters"
* State election next month will set tone for federal vote
Germany's conservative Christian Democrats (CDU) put on a show of total unity at a congress on Tuesday, re-electing Angela Merkel as party leader by a record margin as she prepares to fight for a third term as chancellor.
Merkel, at the height of her popularity, was returned unopposed as CDU chairwoman with 97.9 percent of votes from delegates who stood and applauded her for nearly eight minutes after she lauded Germany's economic resilience in the euro crisis and promised to fight for jobs and prosperity.
The score was her best since becoming CDU leader 12 years ago and the highest since her political mentor Helmut Kohl won by over 99 percent in 1975. German reporters joked that it was the kind of overwhelming number Merkel saw communist leaders score in sham elections during her youth in East Germany.
"These are turbulent times and sometimes we find ourselves in stormy waters. But it is the German CDU that has the clear direction to steer our country through these seas," said Merkel.
When Merkel, a former research physicist, vaulted to the leadership of the CDU in 2000 after a campaign funding scandal that had tarnished Kohl and his designated successor Wolfgang Schaeuble, the party was dominated by older men from the west.
Since then, Merkel has sidelined a series of would-be male rivals and modernised the party, bringing in more women and people with immigrant backgrounds. With popularity ratings close to 70 percent, no one questions her authority any more.
In a mark of her status, one lapel badge being given away at the congress pictured her with the two giants of the CDU: Konrad Adenauer, the first postwar chancellor, who forged West Germany's place in the Western alliance, and Kohl, the country's longest serving leader, who oversaw reunification in 1990.
"A leadership debate would be a sign that there is a leadership problem. But there isn't," Defence Minister Thomas de Maiziere, one of Merkel's closest allies, told Reuters when asked about the absence of any internal challenge to her.
Known to colleagues as "Mutti" - Mummy - Merkel sent a reassuring message about her policy priorities should she win a third term, a feat accomplished only by Adenauer and Kohl.
These included: creating equal opportunities for all, including immigrants; delivering prosperity, job security and fair wages; and ensuring solidarity for the weak in society, such as the elderly and those living in the depressed east.
Sarah Kohl, a 23-year-old student who was attending her first national party congress, credited Merkel with shielding Germany from the problems of youth unemployment haunting other countries in the 17-nation euro zone.
"As a young person, I can say that I have no fears," she said, likening Germany under Merkel to "a company that has a good boss". She added: "Why should you change the management?"
STATE VOTE LOOMS
The congress was held in Hanover, capital of Lower Saxony, where an important election to the state legislature will take place next month that could set the tone for the federal vote.
Regional CDU leader David McAllister - his name comes from his British father - is riding high in the polls and is widely expected to win the most votes. But he could still be pushed out of office by a coalition of Social Democrats (SPD) and Greens.
That is because his current governing partner, the liberal Free Democrats (FDP), have seen their support plunge and they may fail to make it into the state assembly at all.
Merkel faces the same risk in the national vote next year and has made clear she will consider another "grand coalition" with the SPD, or an unprecedented tie-up with the Greens if she does not manage to form a parliamentary majority with the FDP.
Her chances of winning re-election are seen as high, in part because of a disastrous start to her main challenger's campaign. SPD candidate Peer Steinbrueck has suffered a backlash over large sums he made giving speeches while a member of parliament.
A year ago, at the CDU's last annual congress in the eastern city of Leipzig, the euro zone crisis was at a peak and people could speak of little else. At the time, Merkel warned that Europe faced its "toughest hour" since World War Two.
Now, thanks in large part to European Central Bank President Mario Draghi's commitment to buy the sovereign debt of stricken euro states, the crisis has calmed somewhat, although Merkel warned against complacency.
"I could take it easy and say the worst is over," she said. "But I am telling you today that we must be cautious."
In Germany, Merkel is widely applauded for having stuck to her principles, for example in resisting pressure for more radical measures such as the issuance of common euro zone bonds.
Last week, she won a broad majority in parliament for plans in Europe to ease Greece's bailout terms. Even an acknowledgment that Greece may yet need more help in the form of a writedown of European loans does not appear to have done irreparable damage.
In Hanover, the debates centred around domestic rather than international issues.
The fiercest exchange was over whether to grant same-sex couples the same tax breaks as married heterosexuals. Worried about a backlash from conservatives, Merkel came out against any tax change before the congress and the motion was rejected.