BERLIN (Reuters) - Germany s Social Democrats (SPD) beat Angela Merkel s conservatives in a vote in the northern state of Lower Saxony on Sunday in a setback to the chancellor as she prepares for tricky three-way coalition talks at the national level this week. The SPD, which has governed the swing state home to carmaker Volkswagen (VOWG_p.DE) with the Greens for four years, won 37.5 percent, well up from 32.6 percent in the last election there in 2013, according to an exit poll from infratest dimap. Merkel s Christian Democrats (CDU) fetched 35 percent of the vote in the rich agricultural state, down from 36 percent in the last election there in 2013. The environmentalist Greens, currently junior coalition partner to the SPD in Lower Saxony, won 8.5 percent.  The liberal Free Democrats (FDP) won 7 percent and the far-right Alternative for Germany (AfD) cleared the 5-percent threshold to enter parliament with 5.5 percent. Merkel s conservatives, which scored their worst result since 1949 in September s national election, begin exploratory discussions with the FDP and Greens in Berlin this week as they seek to cobble together a federal government. 