UPDATE 1-Germany's Greens and liberals agree on taxing big tech

(Adds Greens' response to FDP proposal)

BERLIN, Oct 23 (Reuters) - The two parties that are in talks to join German Chancellor Angela Merkel's conservatives in government inched closer together in one of the most bitterly contested policy areas on Monday, brightening prospects for a coalition.

Cem Ozdemir, leader of the environmentalist Greens, welcomed a proposal by the pro-business Free Democrats for global action to make it harder for large technology companies to book their taxes in more favourable jurisdictions.

"I'm pleased that FDP leader Christian Lindner has moved on this, saying that Internet companies for example should be more strongly and fairly taxed," said Ozdemir, highlighting progress made in an area where the two parties had been far apart.

"It cannot be right that Amazon and Apple use Europe as a location and use its infrastructure, but refuse to contribute appropriately to its financing even as every bookseller is chased down if he doesn't pay tax on time," he added.

Merkel opened what promise to be marathon coalition talks on Friday, hoping to bring three opposing political camps into a stable government despite signs there would be less money to paper over differences.

Earlier on Monday, Lindner, whose party advocates low tax and fiscal discipline, called for deeper cooperation within the European Union and the Group of 20 leading economies to make global firms pay more tax.

The ability of international companies to minimise their tax liabilities by booking profits in lower-tax jurisdictions has come under the spotlight in recent years as cash-strapped states struggle to finance expanding social and security liabilities.

"I can imagine tax increases for companies like Apple," Lindner told the Sueddeutsche Zeitung newspaper, in an apparent sacrifice of one of his party's shibboleths to smooth the path towards an unprecedentedly tricky three-way coalition.

Merkel's conservatives suffered punishing losses in this month's national election, forcing them to patch together a heterogeneous three-way coalition with few precedents in Germany's post-war history.

The Greens want to boost infrastructure and environment spending, but the FDP and fiscal hawks in the conservative camp view spending proposals with concern. The talks, which continue tomorrow, are set to drag on until at least the end of the year.

Merkel's Christian Democrat party estimates that the smaller parties' tax and spending proposals would cost as much as 100 billion euros ($117.37 billion) over the next four years, three times what its expert reckon is available.

Transport Minister Alexander Dobrindt, a conservative, told Bild newspaper that immigration limits, social benefits and the future of Europe remained big areas of conflict.

In the same interview, Lindner maintained the hard line on Greece that his party is known for, saying that any country that took a debt haircut would need to leave the euro zone. ($1 = 0.8520 euros) (Reporting by Thomas Escritt and Andrea Shalal; Editing by Catherine Evans)