Hombach, a close aide to Schroeder and the architect of his campaign victories, will leave his post as economics minister in North Rhine-Westphalia state to take the powerful position next to Schroeder, Bild and Abendzeitung newspapers reported.

But, with initial preliminary coalition contacts between Schroeder's Social Democrats and the environmental Greens set to begin on Thursday, Hombach, 46, declined to confirm the reports. "Anyone who comments is headed for hell," he told Bild.

The newspaper also reported that Greens parliamentary leader Joschkar Fischer, would be named foreign minister and SPD chairman Oskar Lafontaine would become finance minister. Entrepreneur Jost Stollmann will head a economics and technology ministry, it added.

Schroeder, 54, back in Bonn after a briefvisit to France, expressed confidence that the coalition negotations with the Greens will move forward quickly. Formal negotiations begin on Friday after the preliminary talks in Bonn on Thursday.

Helmut Kohl's outgoing Christian Democrat-Christian Socialist coalition with the liberal Free Democrats, which lost power in Sunday's federal election, will continue in a caretaker capacity until the new administration is in place.

The talks aimed at creating Germany's first "Red-Green"coalition on a national level do not promise to be easy. "We'll try to end our coalition negotiations as early as possible," Schroeder said, adding it was unlikely they will be completed by October 24.

"These are bright but sometimes difficult people," he said of the Greens, often seen as a quirky band of sandal-clad environmentalists with their roots in the 1960s peace movement.

"It must last for four years. I'm very optimistic it will hold together for the full four years," he said. SPD officials have said talks would firstfocus on issues, with the fight against unemployment at the top of the agenda, before dividing up ministry posts among themselves.

SPD party manager Franz Muentefering has said the two parties broadly agreed on tax, economic and social policies. But SPD officials said potential sticking points could be tax reforms, the abolition of nuclear energy and deployment of German forces abroad.

The Berlin newspaper Der Tagesspiegel said the SPD was considering its options with the Greens over the thorny issues of abolition of nuclear energy and the planned high-speed Transrapid train link between Hamburg and Berlin.

It said Schroeder could compromise by dropping the government plans to build the Transrapid in return for Greens agreement to phase out nuclear energy over a longer period.

The SPD party programme, like that of the Greens, is committed to scrapping nuclear power "as soon as possible" -- but wants to close the reactors over 25 years compared to the Greens' demands to shut them down in eightyears.

The Greens have said they want four ministerial posts, butthe SPD have already suggested they may get only two.

Lafontaine is emerging as a powerful figure in Schroeder's government. Bild reported that parts of the economics ministry will be shifted to the finance ministry.

Lafontaine has been sounding like a finance Minister and hiscall for lower interest rates received a favourable echo on Thursday from Bundesbank council member Ernst Welteke.

"What Oskar Lafontaine is calling for is understandable," Welteke told German Radio. He added rate cuts would be on the agenda at the International Monetary Fund meeting in Washington. But Welteke added rate cuts were not a cure-all for the economy.