UPDATE 3-South Africa power strike called off, rand firmer

* Unions propose deal to settle housing issue

* Eskom weighing housing proposal

* Telkom workers to strike until demands are met

(Adds quote on rand)

By James Macharia

JOHANNESBURG, Aug 12 (Reuters) - South Africa's biggest union said on Wednesday it had suspended a strike set for Thursday at state power firm Eskom that could have led to power cuts and further damage to Africa's biggest economy.

The rand ZAR=D3 firmed after news of the suspension, which the National Union of Mineworkers (NUM) said would allow negotiations over the issue of a housing allowance.

President Jacob Zuma took a firm line on unions on Tuesday, saying there was no "pandering" to labour and the threat of a strike at Eskom was part of the normal wage negotiating process.

Unions that helped Zuma rise to power want him to spend more on the poor, a policy that would be economically risky during a recession. [ID:nLB231586]

"The NUM has this afternoon suspended the Eskom mass action which was meant to commence tomorrow, pending the outcome ... over the housing subsidy," the union said in a statement.

The threat of power cuts helped drive up prices of platinum XPT= and palladium XPD= last week and pushed the rand to a three-week low as investors fretted about the impact on a country suffering its first recession in 17 years.

The rand firmed to a session high of 8.0710 against the dollar after news the strike had been suspended.

"The rand clawed back some of its losses. Equity markets are now rallying so I guess there's been an increase in risk appetite," said a currency trader.

Part of the gains came after news of the suspension.

"Definitely such good news would bode well for the rand," added the trader.

But there was no immediate impact on the platinum price as precious metals investors waited for a U.S. Federal Reserve announcement on monetary policy later on Wednesday.

South Africa is the world's biggest platinum producer.

The NUM said the three unions involved in the talks were in favour of Eskom's 10.5 percent wage offer, but wanted Eskom to settle the remaining issue of a housing deal within 30 days.

WAVE OF STRIKES

It said that once this was concluded, the unions would sign a comprehensive deal which would include the pay rise.

"Our members are happy with Eskom's offer of a pay rise, but we need an improvement on housing. We're proposing to Eskom that we finalise a deal on housing within 30 days," Lesiba Seshoka, the National Union of Mineworkers spokesman, told Reuters.

Eskom had promised to settle the housing issue by February.

Eskom's pay offer falls short of the unions' initial demand for a 14 percent rise, about double the inflation rate.

Earlier, the NUM's chief negotiator Paris Mashego said some 80 percent of its members had voted in favour of Eskom's offer. The NUM has about 16,000 members at Eskom, nearly half the utility's employees.

Eskom had said it had contingency plans to ensure the power supply in the face of any strike. Eskom generates 95 percent of South Africa's electricity.

Blackouts early last year temporarily crippled mine output, metal smelters and manufacturing, denting economic growth.

Its officials were unavailable to comment.

A wave of industrial action in South Africa in the past few weeks has led to a series of above-inflation settlements, including agreements in the gold and coal industries.

A strike against telephone group Telkom (TKGJ.J) continued on Wednesday when more than 4,500 striking workers marched to the group's head office. Telkom has more than 23,000 workers.

The Communications Workers Union (CWU) said it wants Telkom to implement higher pay scales before a 7.5 percent wage rise.

"Our members are saying they will remain on full-blown strike action and will not report for duty until an agreement has been signed," CWU General-Secretary Gallant Roberts said.

Telkom spokesman Ajith Bridgraj said reports of more than 4,000 workers marching were "grossly exaggerated".

Meshack Dlamini, a Telkom executive, said talks with workers were still under way, and a meeting would be held on Thursday.

The government gave council workers a 13 percent pay rise on July 31, nearly double the inflation rate of 6.9 percent for June, and the workers ended their 5-day strike. (Additional reporting by Gugulakhe Lourie, Gordon Bell and Martina Fuchs in London)