UPDATE 2-U.S. drops plan to close rural post offices
* Postal Service considered closing 3,600 offices
* USPS says will keep locations open with shorter hours
* Postmaster says listened to customers in rural America
* USPS is losing billions of dollars per year
WASHINGTON, May 9 (Reuters) - The U.S. Postal Service said on Wednesday that it is abandoning for now its plan to close thousands of post offices in rural locations and instead will shorten their hours of operation.
The change represents a victory for U.S. lawmakers and rural communities who created a backlash against the cash-strapped agency last summer when it began considering more than 3,600 post offices for closure this year.
Rather than shuttering offices starting next week, when a self-imposed moratorium on closings was set to end, the plan is to cut the operating hours of 13,000 locations with little traffic to between two and six hours a day.
"We've listened to our customers in rural America and we've heard them loud and clear - they want to keep their post offices open," said Postmaster General Patrick Donahoe. "There's no plan for closings at this point."
The new plan would save more money - roughly $500 million annually compared to $200 million under the old plan - and could placate some lawmakers in Washington who have been critical of the virtually bankrupt agency as it pushes for other controversial changes, such as ending Saturday mail or raising postage rates.
But lawmakers cautioned that removing the threat of thousands of closings should not dissuade Congress from urgently passing legislation to staunch the USPS's annual losses of billions of dollars.
The Postal Service, which relies on sales of stamps and other products rather than taxpayer dollars, has been losing billions of dollars each year as Americans increasingly communicate online.
Barring drastic changes, many of which require congressional action, officials have said the mail agency could face annual losses of $18 billion by 2015.
The Senate passed legislation last month that allows the USPS to end Saturday mail delivery after two years, restructures a massive annual payment for future retiree health benefits, and lets it use a surplus of about $11 billion in a retirement account to offer retirement incentives to older workers.
House of Representatives leaders have not scheduled a vote on postal legislation, and a bill from Republican Darrell Issa that passed his Oversight Committee more than six months ago is significantly different from the Senate version.
One of the major differences between the bills was how to handle post office closings. The Senate bill put in place additional protections for rural locations, such as requiring the agency to look at Internet access in each community.
During debate on the Senate floor, some senators said the bill did not go far enough and called for a longer moratorium on post office closings. Others favored the House approach, which tasks an oversight group with deciding which locations to close.
The Postal Service's move to keep post offices open at reduced hours could eliminate that controversial debate among lawmakers, said Art Sackler of the Coalition for a 21st Century Postal Service, a group that represents business mailers.
"I think that's a step in the right direction, both from the standpoint of serving the public and from removing a real choke point on getting the legislation that is so urgently needed," Sackler said. "The path is clearer to getting a bill done here."
The Postal Service is now seeking regulatory approval for the new rural post office strategy, which would not be completely implemented until September 2014.
Lawmakers repeated calls on Wednesday to pass legislation to help return the Postal Service to profitability.
"Stopgap, piecemeal measures like the proposal offered today only address a small part of the problem and will not keep the Postal Service from an imminent collapse," Senator Thomas Carper, a Democrat, said in a statement.
But some lawmakers said the Postal Service's decision may lessen a sense of urgency to pass a postal overhaul.
Previously the USPS had agreed to a moratorium through May 15 on the closing of post offices and processing facilities. As that date approached, a bipartisan group of lawmakers hoped to use the impending closures to drum up support in the House for the Senate-passed postal bill.
Democratic Representative Peter Welch, who planned to reach out to lawmakers facing closures in their districts, said the Postal Service's plan removes a deadline to act.
"It does seem the brinkmanship style here in Congress often requires a drop-dead deadline," Welch said.
Lawmakers had criticized the agency for focusing on small, money-losing post offices without considering factors such as community impact or Internet access.
A Reuters investigation determined that about one-third of the offices facing closure were located in areas with limited or no wired broadband.
The Postal Service has announced plans to contract with local general stores to offer some services and to use more rural letter carriers, who serve as a post office on wheels, in areas where they close.
Communities can choose to use these "village post offices" in conjunction with fewer hours at their post offices.
The Postal Service also said it was offering more than 21,000 postmasters a buy-out to retire by the end of July.
The Postal Service will make an announcement next week about its earlier plan to close more than 200 mail processing centers.
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