The German government said on Friday its talks with General Motors on the sale of carmaker Opel would take some time yet and made clear it still favored a bid from Canadian supplier Magna.

Months of talks on the future ownership of Opel between GM, which holds 35 percent of Opel shares, and Germany, which is providing state aid for the carmaker, have reached an impasse.

Merkel's government, facing an election in one month's time, has strongly made the case for Magna's bid but GM has so far expressed no preference. The two sides have to reach agreement for a deal to proceed.

Sources involved in the talks have said a rival bid from Brusssels-listed investment firm RHJ International would grant GM a right of first refusal to re-acquire control of Opel at a later date, which would appeal to the U.S. carmaker.

A government spokesman told reporters that contact between government and GM officials was ongoing.

Chancellor Merkel has made clear she wants speedy talks on Opel but also -- and this is a decisive point -- that the talks must (end) well. In other words, the talks will take some time, said government spokesman Klaus Vater.

GM negotiator John Smith is due to speak by telephone to German officials later on Friday and sources close to the negotiations said there were some signs of progress. Vater said no face-to-face meeting was expected on Friday.

To further complicate matters, Opel parent GM may now try to raise the $4 billion it needs to keep Opel instead of selling it, sources told Reuters earlier this week.

POLITICAL FAULT LINES

In an interview with financial daily Handelsblatt, Merkel declined to speculate on whether a deal would be wrapped up before the September 27 election and defended herself from criticism that it had not been wise to come out so strongly in favor of Magna so early.

It was not a mistake. If the German government did not know and say what it wants, it could not hold its ground in talks with GM, she told the paper, reiterating her support for Magna.

We need a sustainable concept for the future of Opel... Magna comes from the auto sector and offers, together with GM, prospects in new markets. We think that is sensible.

Merkel's conservatives and her Social Democrat coalition partners and main rivals in the vote have been united in their backing for Magna but cracks are starting to show.

Guenther Oettinger, the state premier of Baden-Wuerttemberg and a leading figure in Merkel's party, said on Thursday Magna was not the only option. And Fred Irwin, head of the Opel Trust, which has been responsible for Opel since GM entered bankruptcy in June and which must approve any investor, said the government had played its hand too early.

Berlin's support for Magna, bidding with Russian partner Sberbank, is rooted in hopes it would limit German job cuts and reduce GM's involvement to a non-controlling one.

The U.S. carmaker collapsed after years of mismanagement, finally forcing it to seek salvation in a U.S. government-backed restructuring under bankruptcy law pushed through in a whirlwind 40 days.

(Additional reporting by Maria Sheahan)

(Writing by Madeline Chambers; editing by Dan Lalor, John Stonestreet)

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