C402 PILOT REPORTS LOSING 500 FEET DURING HOLDING DUE TO TURBULENCE AND AUTO PILOT MALFUNCTION.

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AS A RESULT OF WINDSHEAR AT MY DEST; I WAS DIRECTED BY ATC TO HOLD NW AT 14000 FT MSL WITH AN EXPECT FURTHER CLRNC TIME OF XB30L; WHICH WAS SHORTLY CHANGED TO XB40L. THE CLRNC WAS GIVEN AT APPROX XA45L. MY REQUEST TO HOLD WITH 10 NM LEGS WAS APPROVED. IN AN EFFORT TO CONSERVE FUEL I REDUCED PWR TO MAINTAIN APPROX 110 KIAS. WHEN I ENTERED HOLDING; I WAS IMC AND ENGAGED THE AUTOPLT. ON THE TURN INBOUND I ENCOUNTERED MODERATE TURB THAT STARTED AN ALT AND HDG OSCILLATION WITH THE AUTOPLT AND AFFECTED THE FUEL FLOW TO THE L ENG; CAUSING IT TO BEGIN TO RUN ROUGHLY. I DISENGAGED THE AUTOPLT WITH THE ACFT IN ABOUT 30 DEGS OF BANK; 5 DEGS NOSE LOW AND ABOUT 200 FT BELOW MY ASSIGNED ALT. WHILE DISENGAGING THE AUTOPLT; I INCREASED MY PITCH; SWITCHED THE FUEL SUPPLY FROM THE AUX TANKS TO THE MAIN TANKS AND ENSURED THAT THE BOOST PUMPS WERE ON. IT WAS AT THIS TIME THAT I ENCOUNTERED SEVERE TURB WHICH CAUSED THE ACFT TO ROLL TO GREATER THAN 60 DEGS AND DROP APPROX 300 FT; BOTTOMING OUT AT 13500 FT MSL. TO REGAIN CTL; I IMMEDIATELY ROLLED WINGS LEVEL; PULLED BACK ON THE YOKE TO ARREST MY DSCNT AND APPLIED MORE PWR. FOLLOWING THIS RECOVERY I WAS ONLY ABLE TO SUSTAIN A 300 FPM CLB. AS I WAS REGAINING MY ALT AND COMPOSURE; ATC REQUESTED MY ALT AND I INFORMED THEM THAT I WAS CLBING BACK TO MY ASSIGNED ALT OF 14000 FT MSL. WHEN ASKED FOR THE REASON FOR MY ALTDEV I REPLIED THAT I HAD ENCOUNTERED LIGHT TO MODERATE TURB. LESSONS LEARNED/CORRECTIVE ACTIONS: WHEN TURB IS IDENTED OR SUSPECTED CARRY AN AIRSPD THAT IS CLOSER TO MANEUVERING SPD. THIS SHOULD ALLOW FOR MORE RAPID ACFT RESPONSE TO UNINTENDED DEVS CAUSED BY TURB WHILE REMAINING WITHIN THE ACFT STRUCTURAL LIMITS. HAND-FLYING DURING IDENTED OR SUSPECTED TURB APPEARS TO BE A BETTER OPTION THAN AUTOPLT IN THE C402B. IMMEDIATELY NOTIFY ATC OF UNINTENDED DEVS AND MY CORRECTIVE ACTIONS. MY UNDERSTANDING OF MOUNTAIN WAVE TURB; THE DISTINCTION BTWN SEVERE AND MODERATE TURB; AND PROCS FOR RPTING THEIR OCCURRENCE TO ATC WERE BELOW WHERE THEY NEEDED TO BE. I HAVE SINCE REVIEWED THESE ITEMS AND UNDERSTAND HOW TO IMPLEMENT THEM IN THE FUTURE. I INTEND TO SHARE THIS EVENT AND THE LESSONS LEARNED WITH THE DIRECTOR OF OPS; CHIEF PLT AND OTHER PLTS OF MY COMPANY TO HELP THEM SAFELY AVOID THIS SITUATION IN THE FUTURE.