UPDATE 4-Libya says two Swiss businessmen must stand trial

* Two Swiss to be charged with tax evasion, other offences

* Men held since July 2008 after arrest of Gaddafi son

* Diplomatic row looks set to widen but no Swiss comment (adds quotes from Libyan Qouaim and wife of detained Swiss)

By Salah Sarrar and Stephanie Nebehay

TRIPOLI/GENEVA, Nov 12 (Reuters) - Two Swiss businessmen will be tried for tax evasion and visa irregularities, Libya said on Thursday, in a case that has caused a diplomatic row and opened the Swiss government to strong domestic criticism.

The men have been held in Libya since July 2008 following the arrest in Geneva of a son of Libyan leader Muammar Gaddafi on charges, later dropped, of mistreating 2 domestic employees.

The duo's detention has outraged many Swiss citizens and media, leading some to accuse Swiss President Hans-Rudolf Merz of mishandling the affair and demand his resignation.

An apology in August by Merz failed to secure a return home for Rachid Hamdani, who works for a construction company, and Max Goeldi, Libya head of the Swiss-Swedish electrical engineering conglomerate ABB (ABBN.VX).

"They will be tried and charged with not respecting residence visa procedures and tax evasion," the Libyan Foreign Ministry said in a statement read to reporters at a news conference by its general secretary, Khalid Qouaim.

The men face a third charge of failing to respect rules set out for companies working in Libya, he added.

The Swiss authorities had no immediate comment.

Quoaim, interviewed on French-language Swiss television on Thursday night, said that the case of the two Swiss men was "totally separate" from the diplomatic row.

Libya cut oil supplies to Switzerland and withdrew more than $5 billion in assets from Swiss banks after the arrest of Hannibal Gaddafi and his wife last year. The couple were released soon after their arrest and charges were dropped.

WIFE'S APPEAL

The businessmen were handed back to the Swiss embassy on Monday from an undisclosed location, but Qouaim said they must now leave the embassy and choose another place to stay so they can be reached by their lawyers and law enforcement officials.

He said they would appear very soon in court, probably before Christmas. The government would not interfere in the case but would ensure it was dealt with speedily.

"Libya's foreign ministry is surprised by the Swiss foreign ministry's stand linking the case of the two Swiss to the (Hannibal Gaddafi) incident between Libya and Switzerland," said Qouaim.

He denied a Swiss assertion that the two had been kidnapped but said a decision to move them was made because there had been talk that Switzerland could send special forces to free them.

"Before they were handed to the embassy they had been free to move within Libya but not to leave the country, but we put them in a safe place," he said.

Switzerland said last week it had suspended an agreement which Merz signed to normalise relations because Tripoli had failed to allow the two men to leave.

Hamdani's wife appealed to Libyan leader Gaddafi to allow the pair to return home on humanitarian grounds, saying the two men had not been mistreated physically but were held in isolation for 52 days.

"If they are tried and end up in prison, we may not have contact with them. It's a nightmare, I can assure you," Bruna Hamdani said on Swiss television. (Additional reporting by Lamine Ghanmi; Writing by Stephanie Nebehay and Tom Pfeiffer; editing by Ralph Boulton)