Volkswagen, Europe's largest carmaker, has halted tie-up talks with Porsche as it said its smaller peer and major shareholder was not ready for a merger.

The two companies had planned to meet on Monday to develop plans for a tie-up after the financial crisis scotched heavily indebted Porsche's plan to raise its stake in VW to 75 percent.

We recognized at the end of the week that Porsche is lacking several fundamental conditions for the discussions, said a spokesman for VW on Sunday.

Porsche does not have a strategy for a possible integration of the two companies and has to sort out internally where it is headed, VW said.

It is now completely open when the talks will continue, the VW spokesman said.

Porsche declined to comment.

Porsche, which already owns more than half of VW, is fighting for influence in a combination with the world's No. 3 car company and its stable of brands, which range from Bugatti and Lamborghini to the Volkswagen Golf.

Calls mounted meanwhile for VW Chief Executive Martin Winterkorn to lead a possible new group, according to newspaper reports.

The prime minister of the German state of Lower Saxony, which has a blocking minority and holds some 20 percent of VW, supported Winterkorn, German paper Der Tagesspiegel reported, citing a spokesman for the prime minister.

Rupert Stadler, chief of VW's Audi unit, also said in an interview with German magazine Wirtschaftswoche he was in favor of Winterkorn.

Stadler expressed the new balance of power between the two companies by saying that VW was the place for a brand such as Porsche, after Porsche initially had planned to take over VW.

The supervisory board of Porsche will meet on Monday, according to a spokesman for the sports carmaker.

Talking to reporters at a car launch late on Monday, VW Chairman Ferdinand Piech named Winterkorn as his candidate to head a merged group.

He said it was unlikely Porsche boss Wendelin Wiedeking would be happy to stay on in a more lowly role. Such comments from Piech, who is also a major shareholder in Porsche, has ended the careers of other managers.

Seeking to find a solution to its financing problems for the VW takeover, Porsche itself had suggested VW might take over its sports car business, a person with knowledge of the matter told Reuters.

At a meeting in Hanover at the end of March, Porsche had asked VW to examine if that was possible, said the person, who declined to be identified.

(Reporting by Peter Dinkloh, Christiaan Hetzner, Hendrik Sackmann and Jan Schwartz; Editing by Ruth Pitchford/Will Waterman)

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