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UPDATE 1-Germany agrees pay deal with public sector unions

(Adds details on demands, background)

FRANKFURT, Oct 25 (Reuters) - Germany struck a deal over pay with public sector unions that will cover about 2.3 million workers employed by municipalities and the federal administration.

The Verdi union and public employers said they had agreed an inverse sliding scale of pay gains, from 4.5% for the lowest income bracket to 3.2% for the highest bracket.

The agreement, which also includes a one-off bonus of up to 600 euros per worker and additional payments for nurses and elderly care workers, will run until the end of 2022.

Government negotiators had offered 3.5% more across income brackets, citing lower tax receipts due to the coronavirus crisis.

The union, however, had demanded a 4.8% gain, arguing that public sector workers, particularly in the health sector, deserved a reward for their crucial role during the pandemic.

The European Central Bank has kept a close eye on German wage negotiations for any sign that wage growth and might be losing steam, potentially complicating its inflation targets.

Reporting by Holger Hansen and Ludwig Burger; Editing by Catherine Evans and Alison Williams