Chancellor Angela Merkel's coalition partners no longer object to Germany buying a stake in EADS after the failure to find a private investor for part of Daimler's holding in Europe's largest aerospace company, political and banking sources said on Wednesday.

The climbdown increases the likelihood that German state-controlled development bank KfW will buy at least a part of the Daimler stake, the sources said.

The German parliament's budget committee needs to finalise a decision about the 2012 budget by Thursday which would have to accommodate any acquisition by KfW of EADS shares from Daimler.

It looks as though it is going to be KfW, a person familiar with the matter said Wednesday.

Key members of Germany's Free Democratic Party (FDP) had opposed government intervention in the deal and instead pressed for a market-driven solution to ownership. But a search for a private sector investor has failed to find a buyer, banking and industrial sources said.

Germany has been searching for domestic investors as a way to retain influence in the Airbus parent group.

EADS is governed by a shareholder pact that gives joint strategic control to Daimler and key French shareholder Lagardere . A potential Daimler pull-out raises questions over the future of the pact, which contains clauses designed to protect national security interests.

France and Germany are seen as keen to avoid a full-scale renegotiation of the politically sensitive pact ahead of elections in France next year followed by Germany in 2013.

A person familiar with the talks, speaking on condition of anonymity, cautioned there have been several false starts in negotiations between Daimler and the government, but said An agreement certainly seems to be closer than before.

EADS shares were down 5 percent in a weak European market.

Diplomats say any radical recomposition of EADS ownership would likely be discussed between Merkel and French President Nicolas Sarkozy, who intervened in 2007 to change the management structure and dampen a feud that soured bilateral relations.

Daimler holds a 15 percent economic interest in EADS and 22.5 percent of the voting rights, and is looking for a buyer for part of its stake.

The entire 22.5 percent stake could ultimately end up in the hands of KfW, one of the people familiar with the deal said Thursday.

Daimler has said it wants to focus on its core automotive business and reduce the long-term drag on earnings that EADS represents.

Daimler, KfW and EADS declined to comment.

Germany's economy ministry, which is headed by FDP party chief Philipp Roesler who has previously opposed any state purchase of EADS shares, was not available for comment.

EADS was founded in 2000 from a merger of French, German and Spanish aerospace interests with Paris and Berlin guaranteed equal weight. The company produces Airbus passenger jets, European Ariane rockets and sensitive national security assets including France's nuclear deterrent and German fighter planes.

The French government owns 15 percent of the company but its day-to-day role is curtailed by the pact. Lagardere owns 7.5 percent and speaks for the French camp as a whole on the board.

(Reporting By Matthias Sobolewski; Philipp Halstrick,; Edward Taylor, Hendrik Sackmann, Editing by Stephen Brown and Tim Hepher)