By Paul Carrel and Hakan Erdem
BERLIN/SAARBRUECKEN, Germany (Reuters) - Chancellor Angela Merkel's conservatives won a regional election in the western state of Saarland on Sunday, dealing a setback to their Social Democrat rivals and boosting her prospects of winning a fourth term in Germany's Sept. 24 national election.
Merkel's Christian Democrats (CDU) strengthened their position as the largest party in the state despite expectations ahead of the vote that the Social Democrats (SPD) would be boosted by their new national leader, Martin Schulz.
The CDU won 40.1 percent of the vote, up from 35.2 percent in the last election in Saarland in 2012, an exit poll for broadcaster ARD showed. The SPD slipped to 30.1 percent, down from 30.6 percent.
Prior to the election, polls had indicated a left-leaning 'red-red-green' alliance of the SPD, the far-left Linke and the environmentalist Greens -- or even a 'red-red' coalition if the Greens failed to win enough votes -- could emerge after the vote.
But the Greens did not meet the 5 percent threshold required to enter the state assembly, and the SPD and Linke, which won 13 percent, lacked enough votes to form a coalition on their own.
"The people decided on stability and reliability," CDU Secretary General Peter Tauber said. "This result is a clear rejection of red-red-green."
Saarland has only 800,000 eligible voters, but the election there was the first of three regional votes ahead of the Sept. 24 federal vote and as such offered an opportunity for the parties to build - or lose - momentum in their quest to prevail at the national level.
Merkel, in power for 11 years, has been an anchor of stability in Europe, which she has guided through the euro zone and migrant crises, and offers experience at a time when many voters are unnerved by rising populism.
The far-right Alternative for Germany (AfD), which bruised Merkel in regional elections last year after her decision in 2015 to open Germany's doors to migrants from the Middle East, won 6.1 percent of the vote in Saarland.
SCHULZ SETBACK
The dip in support for the SPD was a setback in its first electoral test under new leader Martin Schulz. He has re-energised the centre-left party with a promise to tackle inequality that is resonating with many voters nationally.
"This is a long-distance run, not a sprint," Schulz said with an eye on September's national election, but added the outcome of Sunday's vote should not be "sugar-coated".
Schulz is trying to win over dissatisfied working class voters with a message of social justice.
A survey by pollster Emnid for weekly newspaper Bild am Sonntag earlier showed support for the SPD had risen slightly from a week ago and the centre-left party was now tied with Merkel's conservative bloc on 33 percent nationally.
Like federal Germany, Saarland has been governed by a 'grand coalition' of Merkel's conservatives and the SPD and that situation looked likely to continue as the result left the CDU short of sufficient support to rule alone in the state.
"Without the SPD there won't be a government in Saarland," Ralf Stegner, a Schulz ally and deputy SPD leader, told broadcaster ZDF, putting a brave face on the result.
State premier Annegret Kramp-Karrenbauer of the CDU, the conservative candidate who has been nicknamed "the Merkel from the Saar", wants to stay in power with a grand coalition.
She had warned voters of the perils of an alliance involving the Linke, which already governs in a three-way leftist alliance in Berlin and the eastern region of Thuringia.