France's Chirac defends PM over smear scandal reports

PARIS, May 10 (Reuters) French President Jacques Chirac defended his prime minister today against a ''dictatorship of rumour'' he said had engulfed him following an apparent attempt to smear Interior Minister Nicolas Sarkozy.

In a rare and unscheduled statement after the weekly cabinet meeting, Chirac said Prime Minister Dominique de Villepin and his government should not be distracted by the furore over what has become known as the Clearstream smear scandal.

Villepin had ordered two confidential probes into a list, that proved to be faked, of politicians suspected of financial fraud abroad.

That list threatened to damage Villepin's main political rival, presidential hopeful Sarkozy; but Villepin has repeatedly denied any attempt to compromise Sarkozy by the investigation.

''I have every confidence in the government of Dominique de Villepin to conduct the mission I have entrusted him with,'' Chirac said after today's cabinet meeting.

''The (French) republic is not a dictatorship of rumours, a dictatorship of calumny,'' he said, urging investigators to speed up their work.

Chirac said spreading unsubstantiated rumours as facts had fed political extremism and masked good news on the economy and falling unemployment.

Chirac's comments appeared designed to scotch rumours he planned to sack Villepin in a bid to dispel the corrosive climate of suspicion caused by daily revelations triggered by the smear probe.

JUDGE MISLED The Socialist opposition has called on Villepin to quit and plans a censure vote in parliament against the government over the affair, which it says has brought ridicule on France and paralysed government.

The Clearstream affair came to light in 2004 when Villepin, then foreign and later interior minister, ordered intelligence officials to verify lists of names and accounts held in Clearstream, a Luxembourg-based clearing house for financial market transactions.

The accounts were said to be linked to the bribe-ridden 1991 sale of French frigates to Taiwan. But the claims made in anonymous letters were never substantiated and many of the details proved bogus.

The apparent attempt to discredit Sarkozy, the leading rightwing contender for 2007 presidential elections, has forced Villepin into repeated denials that he sought to use the affair to damage his political rival.

A leading investigator today said he had been deliberately drawn into investigating allegations that aimed to smear Sarkozy, leading public figures and industrialists.

''I am angry that I've had my time wasted and that a trap was set for me. Today I understand the scale of the manipulation,'' investigating magistrate Renaud Van Ruymbeke told the daily Le Monde. He also complained he had not been told about secret service investigations that had already deemed the lists fake.

REUTERS SY KN1745