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By JAE-SUK YOO, Associated Press Writer

SEOUL, South Korea (AP) - Union workers at two major South Korean (news - web sites) commercial banks bowed to government pressure and called off a weeklong strike Thursday, removing a major hurdle that had threatened President Kim Dae-jung (news - web sites)'s economic reform policies.

The decision came after workers at other banks failed to heed a call for sympathy strikes. Also, the strike was significantly weakened on Wednesday, when police forcibly broke up a six-day sit-in by thousands of striking workers who had camped at a training institute outside Seoul.

The strike began last Friday, when about three-fourths of the 23,000 workers at Kookmin and Housing & Commercial Banks walked out to oppose their employers' plan to merge their firms in June. Unions fear the merger would result in massive layoffs.

The government gave striking workers until Thursday morning to report to work or face dismissals or pay cuts.

Few workers heeded the government warning and came to work Thursday. But pressure was reportedly building on the unions to call off the strike, with many rank-and-file workers wanting to go back to work. Later Thursday, the unions caved in.

``There should be no punishment, criminal or civil, toward the union members. If this demand is not met, we will strike again early next year,'' said a joint statement from the unions of Kookmin and Housing & Commercial.

Union leaders said operations at the two banks would return to normal Friday.

Kookmin and Housing & Commercial, which handle one-fourth of South Korea's retail banking, said most of their 1,020 branch offices opened for business Thursday but that normal operations were impossible until all workers return. Angry customers had to wait for hours to withdraw money or settle other financial transactions.

A small Kookmin Bank branch office in central Seoul was crowded with scores of customers. ``The government should take sterner measures. All striking workers should be fired,'' fumed Kim Jung-soo, 57, shifting his feet as he waited in a long line.

The merger ties in with economic reforms that grew out of the 1997-98 Asian currency upheaval, a crisis that forced South Korea to seek emergency funds from the International Monetary Fund (news - web sites).

The banks said their merger would create the largest bank in South Korea. They said their main foreign shareholders - Goldman Sachs of the United States and ING Insurance International BV of the Netherlands - led the merger.

The American ratings agency Standard & Poor's said the long-term outlook for the merger is positive.

The Kim government has said painful restructuring is necessary to make the economy more competitive and transparent. But bank union leaders have accused the state of reneging on promises to avoid layoffs.