Germany's Merkel encouraged U.S. will consider EU free trade deal

German Chancellor Angela Merkel fueled expectations of a future EU-U.S trade deal on Sunday, saying she was "very encouraged" talks were being looked at after her recent trip to Washington.

Merkel, speaking at the opening of the 70th annual Hannover Messe trade fair, said Germany was opposed to protectionism and trade barriers, and would continue to work for trade agreements like the one signed between the European Union and Canada.

"I also feel very encouraged by my visit to the United States that negotiations between the EU and the United States on a free trade agreement ... are also being looked at," she said.

Merkel's comments came after the London Times reported on Saturday that U.S. President Donald Trump had warmed to a deal with the bloc after meeting Merkel in March.

A source close to the White House was quoted as saying that there had been a "realization" in the Trump administration that a trade deal with the EU - allowing the tariff-free exchange of goods and services - was more important to U.S. interests than a post-Brexit deal with Britain.

The newspaper quoted a senior German politician as saying that Trump had repeatedly asked Merkel about signing a bilateral trade deal, but was told such an accord could only be negotiated by the EU.

Merkel did not mention the exchange, saying only that she was very encouraged following her U.S. visit and adding that the EU's first priority was to complete work on a deal with Japan.

One of Trump's first acts as president was to cancel U.S. participation in the Trans-Pacific Partnership (TPP), a free trade deal among 11 Pacific Rim countries.

The EU and the United States had begun negotiating the Transatlantic Trade and Investment Partnership under then-President Barack Obama, but the work was not completed.

Dieter Kempf, president of the BDI industry group, warned Washington against pursuing protectionist policies.

"Those who have trouble understanding how trade surpluses and globalization effects are created are invited to come here and take a look," he said.

He also warned the EU against watering down the four basic freedoms of its single market during negotiations with Britain about its exit from the bloc.

"We cannot let the four basic freedoms of the EU be diluted by special arrangements or cherry-picking," he said.

Merkel said the EU would insist on maintaining them, saying: "We want to continue good relations with Britain, while maintaining the advantages of the single market for ourselves".

(Reporting by Andrea Shalal, Reuters TV and Andreas Rinke; editing by Alexander Smith)