* IBM teams up with Fraunhofer Gesellschaft on research effort
* To host Q System One quantum computer in Germany
* Focuses include complex chemistry, artificial intelligence
* German government keen to close gap on cutting-edge research (Recasts with interviews)
By Douglas Busvine
FRANKFURT, Sept 10 (Reuters) - IBM is joining forces with a German research institute to explore the potential of quantum computing, backed by a government plan to invest 650 million euros ($717 million) over two years in wider research in the field.
Berlin's support, sealed at a meeting on Tuesday between Chancellor Angela Merkel and IBM CEO Ginni Rometty, comes as Europe's biggest economy seeks to catch up to the United States and China in a global technology race.
IBM will install a Q System One quantum computer at one of its facilities in Germany, partnering with the Fraunhofer Society - an applied research institute - to build a research unit and community around it.
Quantum computers could operate millions of times faster than today's advanced supercomputers.
The technology is based on quantum bits, or qubits, that can be 'superposed' on each other, exponentially increasing the amount of information that can be processed. IBM's current Q System One machine has 20 qubits.
"This effort is poised to be a major catalyst for Europe's innovation landscape and research capabilities," said Martin Jetter, senior vice president and chairman of IBM Europe.
The quantum computer - the first to be deployed by IBM outside the United States - will be shipped to Germany and set up next year. In the meantime, German researchers will gain access to IBM's U.S.-based Q Network research forum.
Building a research community around the project has the potential to create "a unique concentration of skills", Jetter told Reuters, drawing parallels to the origins of Silicon Valley in the United States.
Developing viable quantum computers has proved to be hugely challenging because they rely on superconductivity that can only be achieved in temperatures close to absolute zero.
Any instability in the qubits, for example from vibrations, can lead to "noise" that causes calculation errors and undermines a quantum computer's power to solve problems.
The Q System One, launched in January, has been deployed primarily in a research setting but IBM - which has branched into cloud computing and artificial intelligence in recent years - hopes to turn it into a commercial proposition.
Researchers will be able to access the quantum computer via the IBM cloud, with potential tasks ranging from mapping complex molecular structures and chemical reactions to making artificial intelligence more powerful.
Another application is financial risk and portfolio analysis, as the equations that run on quantum computers resemble economic systems, said Torsten Uwe Siebert, manager of the Quantum Technology Program at the Fraunhofer Society.
Merkel's government last year said it would make available 3 billion euros to sponsor the research and development of artificial intelligence by 2025 as it seeks to regain ground in cutting-edge research. ($1 = 0.9060 euros) (Reporting by Douglas Busvine; editing by Emelia Sithole-Matarise)