JOHANNESBURG (Reuters) - South Africa's rand held steady against the dollar on Tuesday helped by U.S. steps to prop up commercial paper which increased risk appetite, while stocks rallied as global equities rebounded and higher precious metals lifted local mining stocks. Johannesburg's Top-40 index of blue chips rose 2.86 percent to 19,495.30 points after hitting its lowest level in more than two years on Monday. The broader All-Share index was 2.56 percent higher at 21,560.99 points. "It was expected. At some stage we had to have a bounce ... but I think fundamentally nothing has changed," Tubby Goodwin, a trader at Investec Securities said. "The systemic risk is still around, the consumer is still in trouble, and I think this could just potentially be some bargain hunting and some short covering." The rand was trading at 8.8325 to the dollar at 1501 GMT, not far off its last New York close of 8.8440. It threatened to test the 9/dollar level earlier, battered along with other emerging market currencies. Traders said the U.S. Federal Reserve's move to backstop U.S. commercial paper boosted risk appetite, helping the rand to firm to 8.70 against the dollar. It fell to a two-month low of 12.2087 against the euro before coming back to 12.0475. "It got wacked earlier just like other emerging markets, but the (Fed move) helped the euro to rally and emerging markets came back," said a local trader. The rand has plunged almost 20 percent to the dollar so far this year and about 15 percent against the euro as a credit turmoil in financial markets has raised risk aversion. Domestic factors including a large current account deficit have also weighed on the currency. The blue chips were led by diversified mining group Exxaro, which gained 10.59 percent at 65.25 rand. Paper maker Mondi was up 9.21 percent to 41.50 rand while steel giant ArcelorMittal jumped 7.91 percent to 109 rand. Gold was pushed higher as investors fled to its safe-haven appeal. The precious metal is often bought as an alternative investment to the U.S. currency. Higher platinum prices helped Anglo Platinum up 6.79 percent to 582 rand. Kumba Iron Ore was the biggest loser on the bourse, dropping 10 percent to139.50 rand. African Rainbow Minerals Ltd. slid 7.83 percent to 140 rand and Sasol, Africa's biggest chemical products maker, fell 1.97 percent to 273 rand. Government bonds gained significantly, partly cheered by chances that the South African Reserve Bank, which starts its two day meeting on Wednesday, may cut rates earlier than previously expected after rate cuts in Australia and Israel. The yield on the 2015 issue fell to an 8-month low, and was last down 13.5 basis points at 8.785 percent while that on the 2036 note was down 15 basis points at 8.06 percent, after falling to 7.99 percent, a level last seen in late January. Market analysts IGM said a rate cut would likely result in depressed bond yields in the short-end of the curve.

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