FRANKFURT, Germany (AP) _ Steelworkers settled for a 6.35 percent pay hike Monday, averting a strike that would have threatened Germany's already slowing economy.

The public workers union reacted to the compromise settlement by repeating its demand for a 9.5 percent wage increase, while a steel company official warned of increased layoffs of steelworkers.

After nine rounds of failed negotiations and a majority union vote for the first major strike by steelworkers in 13 years, negotiators compromised on an average 6.35 percent wage increase for some 130,000 workers.

The wage commission of the powerful 3.6-million strong IG Metall union voted 121-2 in favor of the wage package, a union statement said.

The agreement covers steelworkers in the states of Rheinland-Westphalia and Lower Saxony and the port city of Bremen, where the German steel industry is focused.

The compromise pay hike, retroactive to November 1991 and extending through October 1992, comprises across-the-board pay increases and one-time bonus payments.

An IG Metall spokeswoman, Dagmar Opozcynski, said the agreement was reached after a long night of negotiations that began Sunday.

On Friday, the union announced that more than 86 percent of some 90,000 members taking part in a strike vote had approved a walkout. Union officials said at the time a work stoppage appeared unavoidable but that they wanted further negotiations.

The union had originally demanded 10.5 percent wage increases, and before the compromise, steel industry officials had last offered 5.7 percent.

Following the settlement, Thyssen Stahl AG, the country's largest steel producer, said that the wage increases could lead to further layoffs and cost- cutting measures in the industry, which already faces weak demand and falling prices.

Thyssen Stahl had previously announced plans to cut 2,000 of 30,000 jobs at its plants in the Ruhr valley area.

Thyssen spokesman Karlheinz Emonds said that while the company is glad a strike was averted, increased wages will make it harder to compete against other European producers.

As the wage battle shaped up, government and financial officials had warned that too high demands for pay increases could further dampen Germany's already slowing economy and drive up inflation.

Meanwhile, the country's OeTV public service and transport union, which is seeking wage increases of 9.5 percent, said Monday's steelworkers settlement wouldn't affect its demands in negotiations that start Friday.

''This won't necessarily affect our talks. Each situation has its own conditions,'' said OeTV spokesman Rainer Hillgartner.

Government officials, strapped by the costs of German unification, have said they would like public sector workers to settle for pay increases of under 5 percent. The OeTV union has some 2.1 million members.

The last major strike in Germany was a 44-day work stoppage in the steel industry in 1978-1979, that virtually brought steel and auto production to a halt.