By Stephen Brown and Erik Kirschbaum
BERLIN (Reuters) - Germany's main opposition Social Democrats (SPD) will nominate former finance minister Peer Steinbrueck as their candidate to challenge Chancellor Angela Merkel in next year's national election, Bild newspaper reported on Friday.
Bild, citing sources in the centre-left SPD, said party chairman Sigmar Gabriel - who was also seen as a potential candidate - would make the announcement on Monday. The paper said on its website that former foreign minister Frank-Walter Steinmeier, the third contender, had pulled out of the contest.
Steinbrueck, known for his quick wit and abrasive style, led Germany's response to the banking crisis while finance minister in the previous Merkel-led "grand coalition" government from 2005-2009.
A spokeswoman said the party could not comment immediately on the report in Germany's top-selling daily. Nobody at his constituency office in Hilden, west Germany, was available for comment.
A Hamburg native and former premier of Germany's most populous state, North Rhine-Westphalia, 65-year-old Steinbrueck has never won an election for a major post. Steinmeier was the 2009 candidate against Merkel and suffered a crushing defeat in which the SPD scored a post-war record low of 23 percent.
The outspoken Steinbrueck has vowed that he will never again serve in a Merkel cabinet - a strong signal that he will resist a revival of the coalition between her conservatives and the SPD, whose popularity suffered as the junior partner.
Those comments, plus the launch this week of his proposals to put restrictions on the banking sector, have mollified some of Steinbrueck's critics on the left wing of the SPD, who mistrusted him for his centrist economic policy ideas.
The SPD stands at around 26 percent in opinion polls compared to 38 percent for Merkel's conservatives. But the poor standing of her centre-right partners, the Free Democrats, who are languishing at 4 percent, could force her back into an alliance with the SPD to secure her a third term in office.
The SPD insists its campaign goal is to lead the next government in coalition with its close allies, the Greens. Together the SPD and Greens get about 43 percent in polls.
Steinbrueck, whose popularity with centrist voters could siphon away votes from Merkel, hopes to tap into widespread public anger at banks' perceived recklessness and culpability for the financial crisis.
"This is not about destroying the financial system, rather it is about stabilising it and preventing future excesses, and preventing any repeat of what we have seen in the last years," Steinbrueck said on presenting his banking plan this week.
The SPD has supported Merkel's response to the euro zone debt crisis but Steinbrueck has spoken out in favour of common debt issuance in the euro zone even though Merkel's government - and many ordinary Germans - firmly oppose it.
Steinbrueck has a reputation for being abrasive. He angered the Swiss when he was finance minister, comparing them with Indians running for cover in the face of the financial cavalry.
(Additional reporting by Gareth Jones and Michelle Martin; Editing by Noah Barkin)
