A B737-300 CREW; FLYING A CIRCLING APCH TO MDW; TOOK EVASIVE ACTION WHEN ATC ADVISED OF A TFC CONFLICT.

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THE FOLLOWING OCCURRED WHILE FLYING THE ILS RWY 4R CIRCLE TO LAND RWY 13C AT MDW. PRIOR TO INTERCEPTING THE LOC; WE WERE CLRED FOR THE ILS RWY 4R; CIRCLE TO LAND RWY 13C. THE APCH PHASE PRIOR TO PASSING THE FAF WAS NORMAL. WE DSNDED TO 1600 FT MSL AT THE FAF AND SWITCHED TO TWR FREQ AS DIRECTED BY CHICAGO APCH. PASSING THE FAF (ERMIN - HK); WE BEGAN OUR CIRCLING APCH TO REMAIN WITHIN THE TERPS AIRSPACE (IE; 2.3 NM FROM THE RWY). WE MADE OUR RADIO CALL TO TWR INFORMING THEM THAT WE HAD BEGUN OUR CIRCLING APCH. TWR DID NOT REPLY. WE WERE ABOUT 1/3 - 1/2 WAY THROUGH THE CIRCLING MANEUVER WHEN TWR CALLED AND ASKED IF WE WERE ON FREQ -- WE IMMEDIATELY REALIZED THAT SOMETHING WAS WRONG FROM THE TONE OF THE CTLR'S VOICE. WE REPLIED; 'AFFIRMATIVE; WE ARE CIRCLING TO LAND RWY 13C.' THE TWR CTLR XMITTED 'TURN L IMMEDIATELY; YOU HAVE TFC ON FINAL FOR RWY 13C AT YOUR 1 O'CLOCK POS.' I ROLLED THE ACFT FROM 15 DEGS OF R BANK TO 30-35 DEGS OF L BANK. WE SPOTTED THE ACFT ON FINAL AT ABOUT 1 MI AND 1 O'CLOCK POS. OUR B737-300 RESPONDED SLUGGISHLY DUE TO BEING CONFIGURED WITH 40 DEGS FLAPS (OUR HIGHEST DRAG CONFIGN FOR THE SHORT RWYS AT MDW). I ASKED THE CAPT TO SELECT 30 DEGS FLAPS AND THEN OUR B737'S PERFORMANCE IMPROVED -- WE ACCELERATED AND BEGAN TO TURN AWAY FROM THE FINAL APCH COURSE OF RWY 13C. TWR THEN INFORMED US THAT THERE WAS A SECOND ACFT ON FINAL BEHIND THE FIRST ONE THAT HAD BEEN A POTENTIAL CONFLICT. THESE ACFT WERE CLRED ILS RWY 4R CIRCLE-TO-LAND RWY 13. HOWEVER; THEY BOTH FLEW WELL OUTSIDE OF THE TERPS CIRCLING CRITERIA WITH THEIR TURNS TO FINAL LOOKING MORE LIKE A 7 MI STRAIGHT-IN APCH. WE MANEUVERED TO ALIGN OURSELVES ON FINAL FOR RWY 13C BEHIND THE SECOND ACFT (BOTH ACFT WERE CPR BIZJETS). NO FURTHER CONFLICTS DEVELOPED AND WE LANDED WITHOUT FURTHER INCIDENT.