FRANKFURT (Reuters) - Germany's BAVC chemical industry association on Thursday agreed with union IGBCE on staggered wage hikes that will give workers 6.85% higher pay over 20 months.

As part of the deal, the 585,000 workers covered by the agreement will receive an additional day off per year, the union and the employers' association said in separate statements.

Large employers in the sector include BASF, Evonik and Bayer, as well as major foreign producers such as Dow and LyondellBasell

Germany's collective bargaining rounds are seen as an indicator of wage growth in the euro area.

The European Central Bank said this month it would closely watch wages after cutting interest rates for the first time since 2019.

Larger metalworkers' union IG Metall this month advised members to demand a 7% raise over 12 months for 3.9 million workers, well above the current inflation rate.

(Reporting by Patricia Weiss, Ludwig Burger and Miranda Murray; Editing by Madeline Chambers)