UPDATE 1-South Carolina gov. cleared on use of state funds

* State inquiry finds "no improper use of public funds"

* Sanford facing growing calls to resign over affair

* Scandal adds to Republican Party political woes (Adds comment from governor's wife, paragraphs 5-6)

By Matthew Bigg

ATLANTA, July 2 (Reuters) - South Carolina Governor Mark Sanford, who faces growing calls to quit over an extramarital affair, did not misuse public funds in trips he made to see his mistress, the state's top police official said on Thursday.

The announcement by South Carolina Law Enforcement Division (SLED) director Reggie Lloyd gave some relief to the embattled Republican governor, who has 18 months remaining of his term.

"SLED at this time will say that in regards to this relationship, we have found no improper use of public funds," Lloyd told a news conference in the state capital Columbia. He said Sanford had cooperated with the investigation.

A number of Republican colleagues and allies of 49-year-old Sanford have urged him to step down after the emotional public confessions he has made about his affair with a Buenos Aires businesswoman, including a secret trip to Argentina over the Father's Day weekend.

Sanford, a father of four, had agreed to a trial separation from his wife Jenny. She said on Thursday she was "willing to forgive" her husband.

"It is up to the people and elected officials of South Carolina to decide whether they will give Mark another chance as well," she said in a statement.

Sanford's tearful admission of the affair last week was another blow to the Republican Party and dashed any aspirations he might have held of running for president in 2012.

Public questions over his behavior focused on whether he used state funds to meet his lover on several occasions over the last year, including during an official Commerce Department trade mission to Brazil and Argentina.

Sanford, who stepped down as chairman of the Republican Governors Association when he first confessed to the affair, has said he will repay state funds he used for the Argentine leg of the trade mission.

"At no time during this period of review did SLED learn of any information, or any facts, any evidence that would suggest a crime had been committed," Lloyd said, adding the findings would be handed to the state's attorney general.

While Sanford has said he will soldier on despite the scandal, he faces a tough task to turn around the economy of his recession-hit state, which has an unemployment rate of about 12 percent, one of the highest in the country.

After initial effusive apologies to his wife, family, staff and South Carolinians, Sanford has talked more openly about what he called the "love story" of his affair and has also spoken of encounters with other women that stopped short of full-blown affairs.

Political cartoonists and comedians have lampooned the governor's emotional outpourings. One cartoon portrayed him singing "Don't cry for me, South Carolina" in a mock reference to the "Don't Cry for Me Argentina" song from the Andrew Lloyd Webber musical "Evita."

"Every day there seems to be information that increases the pressure for him to resign," said Robert Oldendick, political science professor at the University of South Carolina.

Sanford's spokesman Joel Sawyer told the South Carolina newspaper The State on Thursday that the governor "is finished discussing this matter" and is "focused on being governor, on rebuilding his marriage and on building back the trust of South Carolinians." (Reporting by Matthew Bigg and Pascal Fletcher; Editing by Eric Walsh)