UPDATE 1-German steel workers agree pay rise - union
* 75,000 steel workers to get 4 pct pay rise in two steps
* Agreement runs for 17 months from July
* Apprentices to get permanent jobs till January 2018 (Adds quotes from employers and union, details, background)
GELSENKIRCHEN, Germany, July 8 (Reuters) - German trade union IG Metall has reached an agreement with steel companies to raise the pay of 75,000 workers in northwestern Germany by 4 percent in two steps, ending a dispute that had prompted strikes last week.
Under the agreement, which runs for 17 months and was struck early on Tuesday after more than 12 hours of talks, workers will receive a 2.3 percent increase from July and another 1.7 percent in May 2015, according to IG Metall.
That is less than the 5 percent over 12 months the union had demanded but is well above the rate of inflation in Germany.
"It is a compromise at the upper limit of what we can cope with," said Helmut Koch, negotiator for the employers.
Efforts by governments across the European Union to cut their budget deficits in the past two years have squeezed companies and consumers, hurting the steel industry by curbing demand for cars, appliances and new buildings.
However, IG Metall says that recovering demand should now bolster the steel sector in the coming months.
"Our colleagues will be okay with it," said Knut Giesler, head of the IG Metall trade union in the German state of North Rhine-Westphalia, with regard to the wage deal.
The wage deal also includes provisions for older workers to be allowed to work part-time and for employers to offer apprentices permanent jobs up till January 2018.
Wages in Germany, adjusted for inflation, rose by 1.3 percent in the first quarter, the largest rise in almost three years, data showed last week. They had fallen in 2013 by 0.1 percent, the first annual fall in four years.
Inflation in Germany stands at about 0.9 percent.
Last week IG Metall called strikes at plants operated by steel companies including ThyssenKrupp, Salzgitter , ArcelorMittal and Finland's Outokumpu . (Reporting by Tom Kaeckenhoff; Writing by Maria Sheahan, Kirsti Knolle; Editing by Gareth Jones)