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.