UPDATE 1-Libya court clears Swiss man of immigration violation

* Libya court clears Hamdani of immigration violation-tv

* Hamdani not to serve 16 month jail term-Swiss tv

ZURICH, Jan 31 (Reuters) - A Libyan court has cleared Swiss businessman Rachid Hamdani of illegally being in the North African country, Swiss television reported on Sunday.

Hamdani's case, along with that of fellow countryman Max Goeldi, head of Libya operations for Swiss-Swedish engineering firm ABB (ABBN.VX), caused a row between Libya and Switzerland and unsettled some foreign investors, who flocked to Libya after the oil producer emerged from international isolation.

"In the second instance the Swiss man Hamdani has been cleared of the charge of illegally staying in Libya," Swiss television teletext reported, citing Hamdani's lawyer.

Television said Goeldi's immigration appeal had not yet been decided and that Hamdani would not have to serve a 16 month jail term.

Both men had been convicted on charges of violating Libya's immigration rules and sentenced to 16 months in prison.

They still face charges of violating business rules.

Amnesty International said their convictions did not meet international standards for fair trial.

The two men were barred from leaving Libya in July 2008 after Swiss prosecutors briefly arrested Hannibal Gaddafi, a son of Libyan leader Muammar Gaddafi, on charges of mistreating two domestic employees during a visit to Switzerland.

The charges were later dropped but Libya cut oil supplies to Switzerland and withdrew more than $5 billion in assets from Swiss banks. Libyan officials deny any connection between the arrest in Switzerland and the case of the two businessmen.

(Reporting by Catherine Bosley)