UPDATE 1-Merkel, facing long night, says German coalition talks can work

* Chancellor wants to conclude exploratory talks on Thursday

* But the three groups remain far apart on key issues

* Negotiations expected to run deep into the night

* Merkel needs three-way tie-up to work or risk losing power (Recasts with Merkel quotes, EU's Oettinger, AfD co-leader)

BERLIN, Nov 16 (Reuters) - Talks on forming a new German coalition government "can work," Chancellor Angela Merkel said on Thursday ahead of a long night of negotiations at which she must forge a three-way alliance or risk seeing her 12-year stint in power come to an end.

Merkel, 63, is trying to form an unlikely alliance between her conservatives, the pro-business Free Democrats (FDP) and the ecologist Greens - a combination untested at national level - to allow her to govern for a fourth term as chancellor.

She wants exploratory talks on forming the coalition to end on Thursday so the would-be allies can move on to formal negotiations. But the parties remain far apart on key issues including immigration, finances and protecting the climate.

"We have very, very different positions," Merkel told reporters. "If it works - I think it can work - there can be a positive result at the end of today's negotiations. But this is a difficult task.

"I expect the negotiations will go on for hours ... I am ready to make my contribution," she added.

Merkel is under pressure from her own conservative bloc, in particular her Bavarian allies, the Christian Social Union (CSU), not to compromise too much to secure a coalition deal - in particular on the touchstone topic of immigration.

At stake is a plan by Merkel's conservative bloc to cap the number of people Germany will accept per year on humanitarian grounds at 200,000 - a limit the environmentalist Greens reject.

"I don't know if we can resolve all the discrepancies, all the disagreements," said Joachim Herrmann, a senior member of the CSU, sister party of Merkel's Christian Democrats (CDU).

Jens Spahn, a senior CDU member, told the Passauer Neue Presse: "There won't be a coalition at any price."

Negotiators are holding several rounds of talks in different formats before they convene in the evening for what German media are calling "the night of long knives."


Merkel is a skilled negotiator, renowned at European Union summits for building pressure on her negotiating partners and playing on their fatigue. She must leverage all these skills to secure the three-way "Jamaica" coalition, so-called because the parties' colors match those of the Caribbean country's flag.

"A failure of Jamaica would be her failure," the mass-circulation daily Bild wrote.

Merkel's partner in Germany's previous "grand coalition" - the center-left Social Democrats (SPD), the second biggest party in the Bundestag (lower house) after the conservative bloc - have said they now want to rehabilitate themselves in opposition after suffering their worst election result since 1933.

Failure to clinch a deal could lead to new elections - a scenario none of the negotiating parties wants for fear the far-right Alternative for Germany (AfD) could make further gains after surging into parliament in the Sept. 24 national vote.

AfD co-leader Alice Weidel criticized the three-way coalition talks for failing to produce results, telling daily Die Welt: "If the (conservative) Union, FDP and Greens don't reach an agreement soon, there should be new elections."

Guenther Oettinger, a Merkel ally and the EU's budget commissioner, told a business conference in Berlin that failure to reach a deal would strengthen far-right populism. "That would hurt us in Europe," he said.

Even if negotiators agree a deal after Thursday's talks, it must still pass muster with lower-ranking party officials.

A key test will be a Greens conference on Nov. 25, when the party's rank-and-file will examine any coalition pact. Despite the challenges facing negotiators, some have no appetite to extend the exploratory talks in the event of no deal overnight.

"If, after three weeks of negotiations, we can't say we can go into a stable governing alliance with each other, then three more days aren't going to help," said Annegret Kramp-Karrenbauer, CDU premier in the western state of Saarland. (Additional reporting by Riham Alkousaa and Gernot Heller; Editing by Michael Nienaber/Mark Heinrich)