(Adds ministers' comments, agreements)

By Khalid al-Ansary and Waleed Ibrahim

BAGHDAD, Feb 17 (Reuters) - Germany's foreign minister pledged to boost business ties with oil producer Iraq on Tuesday in a visit highlighting Baghdad's deepening ties with European countries that opposed the U.S. invasion.

Frank-Walter Steinmeier touched down in Baghdad amid tight security, with both Iraqi and German officials praising a sharp drop in violence in Iraq and laying out plans to broaden commercial, social and cultural cooperation.

The visit was the first by a German foreign minister since 1987 and only the second by a German cabinet minister since the 2003 invasion, which Berlin did not support.

The German government has made clear in past months that it hopes to re-establish business links as the bloodshed that swept Iraq in recent years fades.

"We think the situation in Iraq is now good enough to create international confidence," Iraqi Foreign Minister Hoshiyar Zebari said at a joint news conference with Steinmeier.

"German companies must study how they can increase their presence in Iraq," Steinmeier said through an interpreter, even as he cautioned that violence continued to pose a threat.

The visit by Steinmeier, who also met Iraqi Prime Minister Nuri al-Maliki and President Jalal Talabani, follows a visit last week by French President Nicolas Sarkozy.

The visits underscore a shift in European engagement in Iraq after U.S. President Barack Obama took office and a deal was reached to withdraw U.S. troops from Iraq by the end of 2011.

They also highlight growing Western interest in commerce, which has been absent despite Washington's confident early predictions that the fall of Saddam Hussein would usher in new prosperity. Iraq has the world's third largest oil reserves.

"Iraq has enormous economic potential. Oil reserves guarantee the country high liquidity for decades," said Axel Nitschke, a trade expert at Germany's DIHK chambers of industry and commerce.

WEAKLY REPRESENTED

"Due to wars and sanctions, there's an urgent need for investment in many key infrastructure areas. But German business ... are only weakly represented at the moment."

Last July, Michael Glos, then German economy minister, visited Iraq, and the nations have signed an investment accord.

German diplomats said officials from Siemens <SIEGn.DE> and German carmaker Daimler <DAIGn.DE> travelled with Steinmeier.

Last year, Siemens won a contract worth over $2 billion to supply Iraq with gas turbines that will be a mainstay of the Iraqi government's plan to boost its woefully inadequate electricity supply, a chief complaint of war-weary Iraqis.

On Tuesday, Electricity Minister Karim Waheed signed a memorandum of understanding with Siemens to develop local expertise, the government said in a statement.

Siemens and Mercedes-Benz, owned by Daimler, are working to open offices in Baghdad, Maliki's office said. The two sides also agreed to activate a memorandum with German conglomerate MAN AG <MANG.DE> to develop automobile and truck manufacturing.

Iraq and Europe's biggest economy signed a host of other memoranda on academic, scientific and cultural cooperation and also cemented a plan to establish a German university in Iraq.

Germany will open a cultural office in Baghdad, and another is expected in the Kurdish capital Arbil. (Additional reporting by Kerstin Gehmlich in Berlin; Writing by Missy Ryan; Editing by Michael Christie)

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