Initial talks with Greens, FDP to start Thursday Talks take Germany a step closer to SPD-led government But Greens, FDP not ruling out tie-up with conservatives BERLIN, Oct 6 (Reuters) - The centre-left Social Democrats (SPD) moved a step closer on Wednesday to heading Germany"s next government, signing up the Greens and business-friendly Free Democrats (FDP) for coalition talks following an inconclusive national election. The SPD"s candidate for chancellor, Olaf Scholz, said the talks would begin on Thursday following what he called very constructive preliminary discussions. The electorate had given the three parties a mandate to form a government that they now needed to fulfil, he added. The Sept. 26 federal ballot, in which no party won an overall majority and the SPD narrowly relegated outgoing Chancellor Angela Merkel"s conservatives into second place, has kicked off a round of horse-trading. Unlike many other European countries, where the president or monarch invites one party leader to try to form a government, in Germany it is up to the parties themselves to decide. Both the SPD and the conservatives have courted the two smaller parties - which finished third and fourth - to try to secure power in a potentially drawn-out coalition-building process. At stake is Germany"s political future after 16 years with Merkel at the helm, its appetite to shape Europe"s largest economy for the digital era, and the extent of its willingness to follow her lead on engaging on global issues. FDP leader Christian Lindner said his party, which has a greater policy overlap with the conservatives, shared with the Greens "a mutual conviction that there must be renewal in this country". The FDP had agreed to talks with the SPD to try to move Germany forwards, he added. Armin Laschet - the conservative bloc"s leader and its candidate for chancellor, who is fighting for his political life- said his party respected that decision but also stood "ready as partners for talks." Markus Soeder, leader of the Christian Social Union (CSU), Bavarian sister party to Laschet"s Christian Democrats (CDU), said "there will very probably not be a government" with their conservative alliance. DIFFERENCES TO BRIDGE Both the Greens and FDP kept open the option of pursuing negotiations with the conservatives but said there would be no parallel talks for now. An SDP/Green/FDP alliance - known as a "traffic light" coalition on account of the parties" colours - already governs in the western state of Rhineland-Palatinate, but at federal level such a formation would be a first in Germany. The FDP and Greens, far apart on the political spectrum, have worked to find common ground in bilateral talks before each scoping out the larger parties. After proposing the three-way talks, Greens co-leader Robert Habeck said his party still had considerable differences with both the FDP and the SPD and much had not yet been discussed. The FDP"s Lindner said differences remained. "But we have learned that if we try to reach an understanding, a kind of pro-progress centre can be formed and from there we can put our imaginations to work," he added. Merkel, in office since 2005, plans to step down once a new government is formed. Reporting by Paul Carrel and Kirsti Knolle; editing by Philippa Fletcher and John Stonestreet