Britain's FTSE rallies to snap eight-day losing streak

* FTSE 100 up 1.8 percent

* Supermarkets rally on industry data

* Old Mutual (Other OTC: ODMTY - news) resumes rally

* Commodity stocks boosted as oil steadies (Adds detail and quote, updates prices)

By Kit Rees and Alistair Smout

LONDON, Dec 15 (Reuters) - Britain's top share index rose on Tuesday after eight straight sessions of falls, with supermarkets, commodity stocks and firms with South African exposure among the companies rebounding from recent weakness.

Britain's FTSE 100 rose 1.8 percent to 5,978.17 points by 1415 GMT, having fallen 8.5 percent in the previous eight days.

The recovery came ahead of a widely anticipated interest rate decision in the United States, due later in the week.

The U.S (Other OTC: UBGXF - news) . Federal Reserve is set to begin a two-day policy meeting today and is widely expected to raise interest rates.

"The overall market has seen quite a strong rebound from the lows of yesterday ahead of tomorrow's (U.S.) interest rate decision. That will go quite a long way to improve the sentiment in the overall market," said Jonathan Roy, advisory investment manager at Charles Hanover Investments.

Supermarkets were among the top performers with Sainsbury (Amsterdam: SJ6.AS - news) 's rising 4.3 percent, while Tesco (Xetra: 852647 - news) and Morrisons rose 3.9 percent and 4.5 percent respectively.

While the sector remains subdued, some analysts believe that stock falls of over 10 percent since November have been overdone as retailers head into the busy Christmas period.

"People are prepared to go bargain-hunting in supermarkets in what is a key period for the sector," said Chris Beauchamp, market analyst at IG (LSE: IGG.L - news) .

Anglo-African financial services firm Old Mutual rose over 5 percent, the index's top riser, following a 1.3 percent gain on Monday.

It (Other OTC: ITGL - news) continued to benefit from improved appetite for stocks with South African exposure after the appointment of Pravin Gordhan as finance minister lifted the rand from record lows.

British stocks came under pressure on Monday after oil lurched to its lowest levels for 11 years. Brent steadied on Tuesday after regaining ground overnight, which helped Wall Street higher and boosted appetite for stocks.

Analysts said that a glut in supply which has pushed oil prices lower would persist into the end of the year.

"We are maintaining an overall underweight position in the commodities sector based on our view that oversupply is likely to persist for now," Michael Stanes, investment director at Heartwood Investment Management said in a note.

But he added that the likes of Glencore (Xetra: A1JAGV - news) , BP and Shell (LSE: RDSB.L - news) had demonstrated the ability to manage the challenging commodity environment effectively, leaving opportunities in the London-listed market.

Mining companies were also boosted by the EU announcing plans to register Chinese and Russian steel imports, which could result in duties. Glencore led the sector higher, gaining 2.5 percent on the back of an upgrade from JP Morgan.

Among mid-caps, software maker Aveva lost around a third of its share price as its deal with Schneider Electric (EUREX: SND1.EX - news) fell through. (Editing by Estelle Shirbon)