By Andreas Rinke and Friederike Heine

BERLIN (Reuters) -The prospect of a military spending boom by Germany unprecedented since the Cold War sent Europe's defence stocks soaring after Reuters reported the likely next government was mulling a fiscal sea change for Europe's biggest economy.

Germany's likely next chancellor, Friedrich Merz, did not confirm that his conservatives and the Social Democrats were mulling setting up special funds worth nearly a trillion euros to finance urgent defence and infrastructure spending.

But he said spending decisions had to be taken "with great urgency" after U.S. President Donald Trump and his deputy harangued Ukraine's President Volodymyr Zelenskiy in the Oval Office on Friday, crystalising European fears that Washington had cooled on backstopping Europe's defence.

"We must now show that we are in a position to act independently in Europe," he said. "The question of defence has priority."

News of the proposed funds sent shares in defence contractors including Thyssenkrupp, Hensoldt, Renk, Rheinmetall, BAE Systems and Leonardo jump by double-digit percentages on Monday morning.

Neither party has confirmed that a special fund for defence worth 400 billion euros ($417 billion) and for infrastructure worth as much as 500 billion euros were under discussion, a sum which combined would amount to 20% of German GDP.

"There is an enormous need for investment and we won't create consent for it if we just invest in defence," said SPD General Secretary Matthias Miersch on Monday. "The two need to be considered together."

Merz made no comment on the numbers which, if confirmed, would amount to an extra 2% of economic output in spending over the next 10 years, kicking in from next year.

"This would be about as much as the country has invested in East Germany since reunification," Deutsche Bank wrote in a note. "It would be a fiscal regime shift of historic proportions."

Bild newspaper reported that an extraordinary session of parliament might be called for next Monday, which would allow the measure to be passed with the backing of the Greens - who on Monday urged Chancellor Olaf Scholz's outgoing government to approve a further 3 billion euros' funding for Ukraine.

After the new parliament is seated this month, the defence-sceptical Left party's support will be needed to reach the necessary two-thirds majority.

For decades, Germany has been a defence laggard, until 2023 spending less than NATO's target of 2% of economic output on defence, with Russia's invasion of Ukraine and Scholz's defence "Zeitenwende" or sea change only bringing modest changes.