UPDATE 2-Cameron discloses Downing St dinners in access row
* Newspaper sting caught party fundraiser offering access
* Scandal is potentially damaging for prime minister
* Cameron reveals details of contacts with wealthy donors
* List includes hedge fund, metals, oil trade tycoons
LONDON, March 26 (Reuters) - Prime Minister David Cameron disclosed on Monday that a handful of British financiers and hedge fund bosses have dined at his private apartment in Downing Street and his official country house as he tried to subdue a "cash for access" party funding scandal.
The premier announced an internal party inquiry after the resignation of a top Conservative fundraiser caught in a Sunday newspaper sting telling potential donors they could expect meetings with Cameron and possible influence over policy.
Cameron's office also published details of major donors whom he invited to private dinners in Downing Street and at Chequers, the prime minister's country residence northwest of London.
It listed four small evening gatherings in Downing Street since Cameron took power in 2010, including one on Nov. 2 last year attended by Ian Taylor, chief executive of Vitol, the world's biggest oil trader, metals hedge fund tycoon Michael Farmer and banker Henry Angest, along with their wives.
Of a dozen couples or individuals who dined with Cameron, including eight who were at a post-election celebration in July 2010, six were financiers, including three hedge fund managers, and two were property magnates. Two run manufacturing firms.
The Chequers list included the names of party treasurers as well as the millionaire property developer David Rowland and Lebanese businessman Fares Fares.
In Britain - as in most other democracies - party funding has been a perennial source of embarrassment for all major parties for decades, and Cameron has little immediate cause for concern, with an election not scheduled for another three years.
But although he and other senior Conservatives repudiated the behaviour of co-treasurer Peter Cruddas, the latest episode could reinforce the party's image as a friend of the rich and a lobby for London's financial interests at the expense of industry and Britain's relationships with the rest of Europe.
The row broke days after finance minister George Osborne - like Cameron, a 40-something product of the nation's most exclusive private schools and Oxford University - cut the top rate of income tax, exposing the government to charges that the pain of austerity was not being shared between rich and poor.
Cameron has defended his integrity and insisted he had overhauled party funding after previous scandals. He responded to taunts from the Labour opposition by suggesting new talks on party funding reform - though there is little sign of breaking the stalemate between Labour, heavily dependent on trade union money, and the Conservatives, who draw on support from business and the rich.
Deputy Prime Minister Nick Clegg, of the Liberal Democrats, the junior coalition partner, called for cross-party talks on reforming party funding to begin this week. "The system doesn't work. We need to fix it and fix it fast," he said.
"DINNER AT MY FLAT"
A month after he dined quietly at home with Vitol's Taylor, Arbuthnot Banking chairman Angest and Farmer, a Conservative co-treasurer who runs the Red Kite Metals fund, Cameron's hard line on shielding London traders from European Union regulators caused a bitter falling out with fellow leaders at an EU summit.
During a speech on Monday, Cameron said: "In the two years I have been prime minister, there have been three occasions on which significant donors have come to dinner in my flat.
"There was a further 'thank-you dinner', which included donors, in Downing Street itself shortly after the general election," he said, having at first resisted calls to reveal his guest list. "None of these dinners were fund-raising dinners and none of these dinners were paid for by the taxpayer."
A party statement showed seven couples and an individual regarded as "major donors" attending the post-election dinner in the official, public quarters at 10, Downing Street, and six dining with Cameron in his private apartment upstairs on three occasions since February 2011. Farmer, nicknamed "Mr. Copper" in the markets, came to two dinners, as did Andrew Feldman, an old friend of the prime minister who is co-chairman of the party.
As other parties offer supporters and donors access to meetings and debates with leaders and senior officials, the Conservatives have a system for encouraging political and financial support. Their Web site offers a hierarchy of "Donors Clubs" where minimum levels of donation give increasing degrees of contact with party officials and representatives.
For the 50,000-pound ($80,000) annual membership of the "premier supporter group" - The Leader's Group - "members are invited to join David Cameron and other senior figures from the Conservative Party at dinners, ... lunches, drinks receptions, election result events and important campaign launches".
Where Cruddas crossed a line of tolerance appears to have been in implying to the Sunday Times journalists who posed as international financiers that there could be a more explicit input into policy for the biggest donors - "the Premier League" as he called it, using an English soccer analogy.
Dinner in Downing Street with Cameron and his wife Samantha would be on the table to those putting up a quarter of a million pounds ($400,000) or so, Cruddas said, and any concerns about policies would be fed into a prime ministerial committee.
The self-made foreign exchange trading millionaire, who left his inner London school at 15 without qualifications, apologised for what he called "my bluster in that conversation", which was secretly filmed and widely broadcast on television.
Cameron also promised greater transparency in future and stricter oversight of suggestions by donors to policy-makers.
The Conservatives said they would hold an internal investigation, although they resisted Labour calls for an independent inquiry into the affair, drawing scorn from the opposition.
"These represent grave allegations about the way that access is gained and policy is made. They're about a breaking down of the lines between support for a political party and government policy," Labour leader Ed Miliband told parliament. "An inquiry into the Conservative Party, by the Conservative Party, for the Conservative Party - it is a whitewash and everyone knows it."
An aide to Cameron portrayed the treasurer as having broken with party guidelines. "We are just as flabbergasted as you guys," the aide told reporters when answering questions about Cruddas's remarks. "We are more transparent than any government and any prime minister have ever been. We behaved properly.
"What Cruddas was doing was totally unacceptable."
However, the aide said: "We shouldn't discount policy ideas simply because they have been put in by a donor."
The prime minister offered to resume the stalemated talks with other parties on how they fund their organisations.
Party funding has long been a toxic issue in British politics and has periodically led to scandals affecting both Conservatives and Labour. Annual income for each varies with election seasons. In 2010, the Conservatives raised 32 million pounds in donations, and Labour 20 million - a far cry from the hundreds of millions raised by U.S. presidential candidates.
Several million pounds in public money is also allocated to parties, according to their representation in parliament.
Previous attempts by the parties to agree on reforming party funding have failed. Using more public money to fund political parties could be an answer but most voters oppose increasing the amount of taxpayers' money used for the purpose.
Labour, dependent on big sums from the trade unions who founded the party a century ago, is resistant to suggestions from Cameron of a cap on individual donations.
Former Labour Prime Minister Tony Blair's final years in office before 2007 were overshadowed by a police inquiry into allegations that parties had nominated people for seats in the upper house of parliament in return for cash or loans.
For many voters, the latest uproar has also revived mistrust of the political elite which was heightened in the last year of the previous parliament by revelations in 2009 of the abuse of out-of-pocket expenses by members of the legislature from all major parties. Several were sent to jail.
Conservative member of parliament Zac Goldsmith, one of the most visible of many younger Conservatives elected for the first time in 2010, said the Cruddas affair was shocking: "I hope it leads to rapid and radical reform of political party funding.
"Contributions must not only be totally transparent. I believe they should also be capped," he told Reuters. "It is important for democracy and for the parties themselves that they reach out to the wider population, instead of relying on a handful of powerful groups or individuals."
Mark Wickham-Jones, politics professor at Bristol University, said the scandal was potentially "very awkward" for the government.
"Over the last 20 years in British politics each new government has promised to set a new standard in terms of party financing and resolving the dilemmas of funding, he said. "The reality has been each new government has found it very difficult to ensure such a standard is achieved."