I think I've located it! Sent Tom May ("River City Folk") the small segment of tape I had. He didn't know the song, but identified the artists - Neal & Leandra. Contacting them I found it was on their first recording "Rocky Road" from 1988, of which they had a few cassettes left. I've got one on order.

If anyone's interested they have a web site - Google Neal & Leandra - and several CDs, but none have "Grace" on them.

Wil