UPDATE 1-Merkel pins "painful" defeat on nuclear worries

* Merkel’s party defeated in southwest state after 58 years

* Greens’ strength seen bringing broader nuclear shift

* FDP leadership under pressure after fall in support

(Recasts after Merkel news conference)

By Stephen Brown and Noah Barkin

BERLIN, March 28 (Reuters) – German Chancellor Angela Merkel
said on Monday it would take her Christian Democrats a long time
to overcome the pain of an election defeat in their conservative
heartland where the Greens won on fears about nuclear power.

The environmentalist party is expected to take office in a
coalition with the Social Democrats after the vote on Sunday in
the prosperous southwestern region of Baden-Wuerttemberg, where
Merkel’s party had ruled for nearly 60 years. [ID:nLDE72Q0E6]

“It’s a deep wound in the history of Baden-Wuerttemberg and
also in the history of the CDU,” Merkel told reporters in Berlin
on Monday. “The pain from this loss won’t go away in just one
day. We’ll have to work for a long time to overcome the pain
from this defeat.”

She said, however, that she had no plans to reshuffle her
cabinet or radically change her policy course in response to the
defeat. Her Foreign Minister Guido Westerwelle, head of the
increasingly unpopular Free Democrats (FDP), was peppered with
questions about his future but said he would not step down.

Worries about nuclear power following Japan’s earthquake and
tsunami dominated the campaign and mobilised votes for the
anti-nuclear Greens, who are set to lead a state government in
Germany for the first time.

Merkel, an advocate of nuclear power, reversed course after
damage to the Fukushima plant in Japan sparked fears about
radiation leaks, announcing plans temporarily to shutter the
seven oldest nuclear plants in the country in a move some voters
saw as a ploy to shore up support.

Merkel dismissed the critics on Monday, telling a news
conference her views on the safety of nuclear power had changed
since Japan.

“In view of the incident in Japan and the shape of things in
Fukushima we simply can’t go back to business as usual,” she
said. Many conservatives in her party still want to extend the
lifespans of nuclear reactors in Germany, but Merkel urged them
to think again.

“It would be good for our party to draw new conclusions from
the new events,” she said. “Japan is a dramatic experience and
we can’t just ignore that.”

SHIFT FROM NUCLEAR POWER

The election result seems likely to accelerate a German
shift away from nuclear power. Merkel’s energy minister said an
exit would be speeded up. [ID:LDE72R0JT]

Shares in German renewable energy stocks such as SolarWorld
(SWVG.DE: Quote, Profile, Research), Q-Cells (QCEG.DE: Quote, Profile, Research), SMA Solar (S92G.DE: Quote, Profile, Research) and Nordex
(NDXG.DE: Quote, Profile, Research) surged and Deutsche Bank predicted the vote could lead
to a “radical re-ordering of Germany’s nuclear energy policy”.
[ID:nLDE72R077]

The euro currency was also affected by the vote as investors
pushed it down in a bet that a weakened Merkel would have less
political leeway to shore up financially stricken members of the
single currency bloc. [ID:nLDE72R13J]

“The hypothetical risk that parts of the CDU/CSU (its sister
party) and FDP may rebel against Merkel’s pro-euro policies
remains the most potent risk to our positive outlook for the
euro debt crisis,” said Berenberg analyst Holger Schmieding.

Goldman Sachs economist Dirk Schumacher said the election
was unlikely to change Berlin’s position on euro bailouts,
because, although these were unpopular with centre-right voters,
this had played virtually no role in the Baden-Wuerttemberg
election.

Merkel, who will not face a federal election until 2013, is
expected to weather the defeat without a challenge to her
leadership, in part because she has no major rivals left within
her party. [ID:nLDE72Q0LE]

Changes could be looming for the FDP, which barely scraped
into the assembly in Baden-Wuerttemberg and has seen support
plummet since a strong performance in the 2009 federal vote.

A weak FDP is bad for Merkel as her party needs its smaller
partner to form governments at both the federal and state level.

Westerwelle is widely blamed for the FDP’s decline and is
likely to face renewed pressure to go after fighting off a
challenge by some party members last year.
(Additional reporting by Erik Kirschbaum and Brian Rohan;
writing by Stephen Brown and Noah Barkin; editing by Andrew
Dobbie)

UPDATE 1-Merkel pins "painful" defeat on nuclear worries