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Merkel's CDU up in key German state after rival's gaffes -poll

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* Opinion polls show SPD loses big lead in Lower Saxony

* Conservatives could pull off surprise win in state

* Steinbrueck bungling campaign to oust Merkel in September

By Erik Kirschbaum

BERLIN, Jan 11 (Reuters) - Gaffe-prone German opposition leader Peer Steinbrueck may cost his Social Democrats what was once seen as a certain victory in a regional vote this month and a potential win over Chancellor Angela Merkel's coalition in September, a poll showed on Friday.

His approval rating tumbled 12 points to 36 percent in the last month after he sparked a firestorm of criticism by saying German chancellors are underpaid at salary of more than 200,000 euros ($260,000), according to an opinion poll for ARD TV.

Steinbrueck, a former finance minister, was one of Germany's most popular politicians in September when the SPD picked him to run against Merkel. But many voters were unhappy to learn he had earned 1.25 million euros ($1.6 million) as an after-dinner speaker in the past three years. His Dec. 30 comments about chancellors' pay rekindled doubts about his leftist credentials.

The ARD poll showed Steinbrueck tumbling to 11th place in the ranking of top politicians from sixth place just a month ago. Merkel leads the table with 65 percent, gaining 5 points.

The poll also showed 28 percent of SPD supporters believe Steinbrueck is doing more harm than good in the party's bid to return to power. Also 26 percent are in favour of the SPD dropping him for a different candidate.

Steinbrueck has hurt SPD hopes in national polls as well as in Lower Saxony, where the SPD and Greens have lost their 13-point lead over Merkel's conservatives and their Free Democrat coalition partners of six months ago.

"It's a disaster for Steinbrueck," said Joerg Schoeneborn, editor in chief of the ARD network WDR that publishes the monthly DeutschlandTrend poll each month. "Ten days before the Lower Saxony election Steinbrueck has crash-landed in the poll."

SPD SQUANDERS BIG LEAD IN LOWER SAXONY

The SPD had been confident it could win in Lower Saxony on Jan. 20 with its Greens partners. But the ARD poll showed the SPD down one point to 33 percent and the Greens steady at 13.

The ruling Christian Democrats (CDU) were steady at 40 percent while support for their FDP allies rose a point to 5 percent. The centre-left SPD and Greens alliance now hold a mere 1-point lead over the centre-right CDU and FDP.

Last May the centre left was 13 points ahead in Lower Saxony with 49 percent - 36 for the SPD and 13 for the Greens - versus 32 percent for the CDU. Back then, the FDP was seen failing to clear the 5 percent hurdle for entering the regional assembly.

The SPD has taken power away from Merkel's CDU in four of Germany's 16 states since the last federal election in 2009 and now rules or shares power in 12 states.

The SPD has been counting on winning Lower Saxony as a springboard for the September elections. Unexpectedly losing the pivotal state would be a major blow, likely to ignite a debate in the SPD about the viability of Steinbrueck's candidacy.

In the ARD TV national poll, the SPD fell 1 point to 28 percent in the last week while their Greens allies added 2 to 14 percent. Merkel's conservatives were steady at 41 percent as was the FDP at 4 percent. The Left party was set to win 6 percent.

Neither Merkel's centre-right nor the centre-left could form a majority if those were the results of the election. Analysts believe Merkel would then try to form another "grand coalition" with the SPD like the one she led from 2005 to 2009. ($1 = 0.7568 euros) (Editing by Louise Ireland and Stephen Brown)

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