8 Min Read
* Cameron, friend of former editor, says there should be phone-hacking inquiry
* Murdoch backs his senior executive as parliament holds emergency debate
* Families of London bomb victims say may have had phone hacked (Adds News Corp statement, finance minister's phone may have been hacked)
By Kate Holton and Jodie Ginsberg
LONDON, July 6 (Reuters) - Rupert Murdoch promised full cooperation on Wednesday to resolve a scandal shaking his media empire after British Prime Minister David Cameron promised an inquiry into what he called "disgusting" phone hacking by a newspaper.
Responding in parliament to allegations that the News of the World eavesdropped on voicemail for victims of notorious crimes, including child murders and suicide bombings, Cameron said he was "revolted" and would order inquiries, probably into both the specific case and more widely into Britain's cut-throat media.
The opposition, keen to highlight Cameron's own ties to Murdoch and to two former editors at the eye of the storm, noted that any inquiry would not start, let alone finish, for months if not years. Critics accused the Conservative government of trying to bury the embarrassment of the long-running saga.
Murdoch, whose News International group faces boycotts from advertisers and readers as well as questions over a takeover bid for broadcaster BSkyB , made a rare public statement to say he too found the hacking, and reports of buying tips from police, "deplorable and unacceptable" and would ensure transparency.
But the 80-year-old Australian-born American media magnate made clear he was standing by Rebekah Brooks, the 43-year-old head of his British newspaper operation. She was editor in 2002 when, police say, a News of the World investigator listened to -- and deleted -- voicemails left for the cellphone of missing 13-year-old Milly Dowler, who was later found murdered.
Cameron said: "We do need to have an inquiry, possibly inquiries, into what has happened." The prime minister faces questions over his own judgment in appointing Brooks's successor as editor, Andy Coulson, as his spokesman. Coulson quit Cameron's office in January, but denies knowing of any hacking.
Cameron, who regularly hosts Brooks at his home, said: "We are talking about murder victims, potentially terrorist victims, having their phones hacked into. It is absolutely disgusting." In a further twist to the affair, a spokesman for Finance Minister George Osborne confirmed media reports that police had told the senior cabinet minister that his name and home number were in notes kept by two people jailed for phone hacking.
Murdoch said in his statement: "Recent allegations of phone hacking and making payments to police with respect to the News of the World are deplorable and unacceptable.
"I have made clear that our company must fully and proactively cooperate with the police in all investigations and that is exactly what News International has been doing and will continue to do under Rebekah Brooks' leadership."
The leader of the opposition Labour party, Ed Miliband, said Cameron had made a "catastrophic error of judgment" in hiring Coulson as his communication director and said Brooks, a high-flying Murdoch confidante, should resign her current post. She says she knew of no illegal hacking while editing the paper.
When its royal correspondent and an investigator were jailed in 2007 for hacking into the cellphones of royal aides to break a story about an injury to Prince William's knee, the newspaper insisted it was a case of one rogue reporter.
After campaigning by celebrities and politicians who suspected they too had been spied on, police launched a new inquiry in January and, following the arrests of several journalists, the affair has taken on dramatic new proportions.
Shares in Murdoch's News Corp, which also controls Fox television, the Wall Street Journal, London's Times and the New York Post among other titles, were down over 5 percent in New York, while shares in BSkyB fell more than 2 percent.
Major advertisers abandoned the News of the World.
Speaking for one carmaker Lance Bradley said: "Mitsubishi Motors in the UK considers this type of activity -- especially in such a distressing case -- to be unbelievable, unspeakable and despicable ... This is where we draw the line."
Internet campaigns and the actor Hugh Grant urged readers to boycott the paper which, if successful, may prove more damaging than political condemnation to Britain's best-selling Sunday paper, read by some 7.5 million people on sales of 2.6 million.
Sales of News Corp's daily sister paper the Sun never recovered in Liverpool after it offended the city's football fans in the wake of the 1989 Hillsborough stadium disaster.
"We need an inquiry that uncovers all the practices and the culture, not just of the News of the World but all tabloid journalism in this country," said Grant, a fixture of the gossip columns, who says he was a victim of phone hacking.
Though analysts believe the chances of the BSkyB purchase being derailed are slim, the watchdog which oversees Britain's broadcasting industry issued a statement pointing out that it had a duty to assess whether holders of a broadcasting licence are 'fit and proper'. Murdoch is trying to buy the 61 percent of the BSkyB pay-TV group that it does not already own.
"There has been a shift in the last three days, there is now a consensus that this needs full and proper scrutiny," media consultant Steve Hewlett told Reuters.
Police have been criticised for being slow to investigate the phone-hacking claims but reject suggestions this was because of alleged payments to officers. The head of the Metropolitan Police Paul Stephenson said allegations of "inappropriate payments" to some officers were under investigation.
British politicians have said in the past they feared criticising any of the Murdoch papers because they feared their own private lives might be exposed.
Among further allegations, families of Londoners killed by Islamist suicide bombers in 2005 said police had told them their voicemail messages may have been intercepted.
Graham Foulkes, whose son David was one of 52 people who died in the 7/7 bombings, told BBC radio he was contacted by police after they found his private contact details on a list as part of the investigation into hacking claims.
"We were using the phone frantically trying to get information about David and where he may have been and ... talking very intimately about very personal issues, and the thought that these guys may have been listening to that is just horrendous," Foulkes said. Relatives are preparing to mark the sixth anniversary of the attacks on Thursday.
News International said it would be contacting the Defence Ministry about reports the phone numbers of British soldiers killed in Iraq and Afghanistan were found in the files of a private investigator jailed for hacking phones. "If these allegations are true we are absolutely appalled and horrified," it said in a statement.
On Tuesday the company said new information had been provided to police. The BBC said the material related to e-mails appearing to show payments to police officers for information and were authorised by Coulson when he was editor.
Commentators suggested information about the payments had been released to deflect attention from Brooks, who unlike Coulson is still a key part of Murdoch's business. The Guardian, a left-leaning daily which has taken a lead in investigating the scandal, said News International would also be saying that Brooks was on holiday at the time of key alleged incidents.
"If Rebekah falls then who is next? Well it's James Murdoch," said media consultant Hewlett, suggesting that keeping her in her position served to protect her superior, Murdoch's son James, from