WRAPUP 7-Murdochs to face UK govt inquiry, FBI to probe News Corp
* Murdochs change mind, agree to answer UK committee's questions
* FBI to probe News Corp after allegations of 9/11 victims' phone-hacking
* Police arrest former News of World deputy editor
* UK Deputy PM raises "fitness" issue on media ownership (Adds Murdoch denial on separating News International)
LONDON, July 14 (Reuters) - Rupert Murdoch on Thursday caved in to pressure from Britain's parliament to answer questions over alleged crimes at one of his newspapers and denied that News Corp was drawing up plans to separate its newspaper holdings.
Murdoch said News Corp had handled the crisis engulfing his media empire "extremely well in every way possible" making just "minor mistakes" and called reports he would split off his newspaper assets "pure rubbish".
Speaking to his Wall Street Journal newspaper, Murdoch said his son had acted "as fast as he could, the moment he could" to deal with the scandal.
The Australian-born media mogul's comments came as he faced investigations on both sides of the Atlantic.
In addition to the probe by British lawmakers keen to break his grip on politics, the Federal Bureau of Investigation said it was looking into allegations News Corp tried to hack into 9/11 victims' phones.
"We are aware of the allegations and are looking into it," said Peter Donald, an FBI spokesman in New York.
The phone-hacking scandal deepened on Thursday with the arrest by British police of a ninth suspect, named by media as a former deputy editor of Murdoch's News of the World.
His detention added weight to a government call for the media regulator to decide whether Murdoch's business was fit to run British television stations.
Murdoch, 80, has been forced to close the News of the World and back down on his biggest acquisition plan yet, the buyout of British pay TV operator BSkyB , due to an outcry over allegations reporters accessed private phone messages.
He and his son James, heir apparent to News Corp, initially said they would not face questions from parliament's media committee over phone hacking but reversed their decision after Prime Minister David Cameron said they should attend.
Rebekah Brooks, who runs Murdoch's British newspaper arm, News International, has agreed to be grilled by the committee. She was a friend of Cameron, who has echoed calls for her to go.
Brooks, who edited the News of the World at the time of one of the most serious alleged incidents, said the police inquiry might restrict what she could say. Her concern was echoed by James Murdoch in a letter to the committee confirming his and his father's attendance.
Speculation was growing at News International's east London headquarters that the company might be reconsidering its position on Brooks after resisting pressure for her to quit, a source familiar with the situation said.
Murdoch, a U.S. citizen, also said he would give evidence to a public inquiry announced by Cameron after questions were raised over the role of some police officers in the scandal and relations between British politicians and media owners.
The session is certain to be hostile. During a heated debate on the hacking scandal on Wednesday, Dennis Skinner, a veteran left-wing Labour member of parliament described Murdoch as "this cancer on the body politic".
Murdoch and other senior executives have denied any knowledge of the alleged practices.
British Business Secretary Vince Cable said of the swift volte-face by politicians queuing up to condemn the Murdochs. "It is a little bit like the end of a dictatorship when everybody suddenly discovers they were against the dictator," he told BBC radio.
The allegations of phone hacking, which reached a peak as Murdoch's British bid came up for approval this month, are now reverberating around the world.
The FBI probe will cover allegations that News Corp tried to hack into phone records of victims of the Sept. 11, 2001, attacks on the United States, although U.S. officials said they were unaware of any concrete evidence to corroborate reports of wrongdoing.
"I have heard of no evidence of allegations yet of anything being done in the United States of America. If there is, then obviously it should be investigated, but I have (heard of) no allegation of that," said John McCain, a member of the U.S. Senate Homeland Security Committee which would be briefed on 9/11 related issues.
Australia's prime minister said her government may review media laws.
Murdoch, who owns 39 percent of British pay TV operator BSkyB, withdrew his $12 billion bid to take over the rest of it on Wednesday after British politicians united in a call for him to pull out of the deal.
Britain's Deputy Prime Minister Nick Clegg noted media regulator Ofcom was already looking into whether News Corp should be allowed to maintain its existing stake in BSkyB.
"Clearly there are big questions about the fitness and properness of News International and that is exactly why Ofcom are now looking at it," Clegg, leader of the Liberal Democrat coalition partners, told BBC Radio 4.
"The thing that I think isn't quite clear to me at least is exactly how fit and proper tests are applied," he added.
The catalysts for public disgust over the hacking allegations were reports a News Corp newspaper had hacked into the voicemails of murder victims.
"To see some of the things that have been done to intrude on people's privacy, particularly in moments of grief and stress in the family lives, I've truly been disgusted to see it," Australian Prime Minister Julia Gillard told Australia's National Press Club.
"I anticipate that we will have a discussion amongst parliamentarians about this, about the best review and way of dealing with all of this," she said.
"DARK ARTS" OF JOURNALISM
U.S.-based News Corp has been rocked by a series of scandals alleging journalists and hired investigators working for its flagship News of the World tabloid hacked into the voicemails of thousands of people, from victims of notorious crimes to families of soldiers killed in the war in Afghanistan.
The allegations, which include bribing police officers for information, galvanised British lawmakers across party lines to oppose a man long used to being courted by the political elite.
Police arrested former News of the World deputy editor Neil Wallis on Thursday, the ninth person held since the inquiry was revived earlier this year.
In a statement, the Metropolitan Police said it had hired Wallis as a consultant from October 2009 until September 2010, an embarrassment for a force facing questions about its links to tabloid reporters.
The crisis has also tarnished Cameron, who faces questions about why he appointed a former News of the World editor as his communications chief.
Clegg distanced himself from the decision on Thursday.
"We did discuss it. Of course we discussed it. But at the end of the day I make my appointments to my own office and David Cameron makes his own appointments." (Additional reporting by Stefano Ambrogi, Michael Holden, Matt Falloon and Mark Hosenball in London, Paul Thomasch,Basil Katz, Carlyn Kolker and Yinka Adegoke in New York, and Rob Taylor in Canberra; Writing by Keith Weir and Louise Ireland; Editing by Jon Boyle)
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