GM Opel U-turn awkward for Merkel but no disaster

* Shock GM decision announced day after Merkel met Obama

* Merkel needs to win May 2010 vote in Opel state

By Paul Carrel

BERLIN, Nov 4 (Reuters) - General Motors' decision to keep its European unit Opel is embarrassing for German Chancellor Angela Merkel, who had lobbied for a sale, but the U.S. group's U-turn deals no lasting blow to her new government.

GM's shock decision dominated German news bulletins on Wednesday and completely overshadowed Merkel's address a day earlier to a joint session of Congress in Washington -- a speech that was well received in the United States.

The German government and local politicians -- taken by surprise as was Merkel herself -- were furious at the U.S. carmaker's change of mind, and German unions tore up a deal to cut costs in protest.

Merkel invested much political capital over the last year to secure a deal for GM to sell the troubled Opel unit to a group led by Canada's Magna, though she did so under pressure from her Social Democrat rivals in the run-up to September's election.

But many Germans resent GM for its role in Opel's steady decline from its position as Germany's top car brand in the 1970s, and their anger at the management shifts some of the attention from Merkel.