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BERLIN (Reuters) - Chancellor Angela Merkel denied on Monday she made a tactical error by putting her government's euro zone rescue efforts at the centre of a regional election campaign after her party suffered yet another sobering defeat.
Even though her Christian Democrats suffered their worst-ever result in Mecklenburg-Vorpommern on Sunday amid persistent worries about the euro, the German leader chose to blame local issues for the drop to 23.1 percent from 28.8 percent in 2006.
"I don't think it was a mistake to have spoken about the euro," Merkel told a media conference after her CDU suffered its sixth defeat in regional polls this year. She campaigned hard in the state with eight speeches that all focused on the euro.
"It got very, very quiet on the market squares every time," she said, referring to her euro comments in campaign speeches. "People listened incredibly attentively... They have an interest in wanting to know what their government is doing...the euro is an emotional one for many people."
Germans are increasingly dubious about efforts to help Greece and other struggling economies in the euro zone. An opinion poll in Europe's richest country found two-thirds think their parliament should not back more funding for the bailout.
In Mecklenburg-Vorpommern the CDU has been the Social Democrats' (SPD) junior coalition partner since 2006. SPD support surged 5.5 points to 35.7 percent and the party now has three options: continue with the CDU or switch to the Left or Greens. All three leftist parties, all in opposition at national level, saw a surge in support.
There was more bad news for Merkel. Support for her federal government coalition partners, the Free Democrats, collapsed to 2.7 percent from 6.9 percent in 2006.
The rout for the two biggest parties in Germany's ruling centre-right coalition sent the euro tumbling in financial markets to three-week lows and cast doubt on the euro zone's ability to solve its debt crisis.
German share prices also fell sharply, underperforming weaker stocks across Europe, with the benchmark DAX index closing down 5.28 percent at 5,246.18 points, having hit a two-year low of 5,208.37 during the session. Traders in Frankfurt said the election result raised fears about the euro.
The centre-right bloc has been plagued by dissent over its hesitant response to the euro zone crisis and divisions on tax policy, but the economy has been showing solid growth, making the latest drubbing at the ballot box all the more significant.
German conservative leaders called on their party to rally around Merkel ahead of a vote on Sept. 29 in parliament on euro zone bailout measures. Some coalition deputies have said they will vote "no" and her government may fall if the coalition fails to win a majority without relying on opposition backing.
"The important thing now is that we clearly stand together behind the chancellor," said Volker Bouffier, state premier of Hesse and a deputy party leader to Merkel.
"It is very important that we get a clear (own) majority on this," added Bouffier. Anywhere from a dozen to two dozen members of parliament could vote against measures bolstering the euro zone rescue fund, according to coalition deputies.
The CDU could still end up as junior coalition partners to the SPD in Germany's poorest state despite the vote debacle.
But for the FDP, an opposition party in the state, the game is over. Knocked out of the regional assembly by failing to win 5 percent, the party is under pressure to sack unpopular Foreign Minister Guido Westerwelle. He was forced to give up the party leadership and the post of vice-chancellor in May.
Hermann Groehe, Merkel's deputy party leader, also said local issues were to blame for the CDU's poor showing but conceded that worries about Greece and the euro played a role.
"Obviously the debate about Greece or about a looming or avoided bankruptcy in the United States raises concerns about the stability of the currency," Groehe told German radio. "But quite clearly local issues influenced voters yesterday."
The defeat will raise nervousness among MPs in the Berlin parliament worried about their own job security. The coalition faces the difficult vote on the euro zone bailout on Sept. 29 and there are fears not enough deputies will back Merkel.
"Every regional election defeat will cause Angela Merkel problems," said Everhard Holtmann, a political scientist at the University of Halle. "There is a lot of unease and uncertainty among the CDU's grassroots supporters over the defeats as well as some of her policy changes on things such as nuclear power and education system reforms."
Additional reporting by Andreas Rinke; Editing by Louise Ireland