* Tradition of political sparring on Ash Wednesday
* Steinbrueck slams Merkel for caution, stealing policies
* SPD in uphill battle to unseat Merkel in September vote
By Noah Barkin
BERLIN, Feb 13 (Reuters) - Angela Merkel's main challenger in this year's German election attacked her record in a combative speech on Ash Wednesday, accusing the chancellor of stealing policy ideas and cynically profiting from reforms introduced by his Social Democrats (SPD).
Peer Steinbrueck, a former finance minister whose campaign to unseat the popular Merkel got off to a disastrous start last year, tried to reassure the SPD faithful about their prospects in the September vote, vowing to fight for victory and showing off the sardonic wit and feistiness for which he is known.
"The voters need to decide whether they want a politician whose edges have been filed back to nothing, or someone who isn't afraid to speak out for what they believe in," said Steinbrueck, mocking Merkel's cautious leadership style.
The one-hour speech was one of several being given across Bavaria on what is known in Germany as "Political Ash Wednesday", a long-standing tradition in which politicians spar with each other to mark the end of carnival season.
The verbal exchanges became a national phenomenon in the mid-1970s thanks to Franz-Josef Strauss, the bullish former leader of the Christian Social Union (CSU), whose colourful attacks on the opposition were legendary.
"It's not true that I eat a Social Democrat for breakfast every day," the corpulent Strauss once barked. "I only eat what I like."
This year, the war of words was expected to be unusually scrappy. In addition to the federal election, voters in Bavaria will also go to the polls in September to pick a regional government.
The SPD is fighting an uphill battle. While Merkel is hugely popular thanks to her defence of German interests in the euro zone debt crisis, Steinbrueck's ratings have slid after a series of gaffes and outrage over his lucrative speaking engagements.
A Forsa poll for Stern magazine released on Wednesday showed support for Merkel's conservatives, which include her Christian Democrats (CDU) and the CSU, at a seven-year peak of 43 percent.
Steinbrueck's party stands at just 25 percent, only a couple points above their 2009 result, which was a post-war low.
Most analysts expect either a return of Merkel's centre-right coalition with the liberal Free Democrats (FDP), or a Merkel-led "grand coalition" of her conservatives and the SPD.
Steinbrueck served under Merkel as finance minister in just such a right-left partnership between 2005 and 2009, but has vowed not to do so again.
"I'm not betting on a grand coalition, I'm betting on victory, not any other scenario," he said on Wednesday.
Steinbrueck, 66, said Merkel's successes in her first term, when Germany weathered the ravages of the global financial crisis, were largely down to the SPD. He claimed credit for a decision at the height of the crisis to guarantee German savings deposits and a cash-for-clunkers car scheme that shielded the country's automakers.
He also praised Gerhard Schroeder, Merkel's SPD predecessor, for introducing the "Agenda 2010" labour market reforms that many economists say are responsible for Germany's current economic strength.
The measures ended up dividing the centre-left SPD, hitting Schroeder's popularity and helping Merkel to power. Ever since then, she has benefited from the economic gains the reforms have delivered.
At the same time she has moved her CDU to the left, turning the SPD's most potent positions - on nuclear power, the environment, education, childcare and wages - into her own. This has made the big parties virtually indistinguishable for many voters, a trend the SPD is trying hard to reverse.
Steinbrueck said only the SPD would deliver a minimum wage, secure German pensions, deliver education for all and push back against rising income inequality.
But in a sign of just how hard the SPD must work to differentiate itself, Steinbrueck also felt the need to harken back to the Iraq war a decade ago.
Schroeder banded together with France and Russia to oppose the U.S.-led war, a stance that helped him win re-election in 2002. Merkel, then opposition leader, made a trip to the United States at the time and gave a newspaper interview criticising Schroeder's refusal to back President George W. Bush.
"We remember Schroeder's position on Iraq and how he refused to follow the United States and participate in this war," Steinbrueck said. "Have you forgotten who tried to discredit him? It was Angela Merkel in the United States." (Reporting by Noah Barkin; Editing by Jon Boyle)