Dresden  - Political leaders in the German state of Saxony agreed a coalition government of Chancellor Angela Merkel's conservatives (CDU) and the liberal Free Democrats (FDP) on Tuesday - days ahead of the country's general election.

The so-called "black-yellow" coalition between the CDU and the FDP is Merkel's favoured partnership if both parties win a sufficient majority in Sunday's national election.

State Premier Stanislaw Tillich of the Christian Democrats (CDU) and Saxony's FDP leader Holger Zastrow gave their official assent for a new state parliament to be formed on September 29.

The agreement comes as a boost for Merkel, who hopes to win enough votes to end her "grand coalition" with the Social Democrats (SPD) in favour of an alliance with the free-market FDP.

Both parties hoped their quick agreement to form a government, just weeks after the state elections on August 30, would send a signal endorsing a black-yellow coalition of CDU and FDP at national level.

Negotiations were still underway in Thuringia and Saarland, where the CDU lost its absolute majority on August 30. No decisions are expected until after Sunday's general election. dpa