UK Police grill Blair's chief party fundraiser

LONDON, July 13 (Reuters) The top fundraiser of British Prime Minister Tony Blair's Labour Party spent today being questioned by police in a loans-for-Lordships scandal, and newspapers said police could have questions for Blair himself.

A long-simmering party finance scandal boiled over onto the front pages this week when police arrested Labour fundraiser Lord Michael Levy, 62, who is also Blair's sometime tennis partner and personal envoy to the West Asia.

Levy has been bailed without charge, but the scandal has hurt Blair and added to calls that he stand down amid a series of sex, sleaze and incompetence allegations that have surrounded several members of his cabinet over the past few months.

Police are investigating allegations that Labour promised lordships -- state honours which come with life-long seats in the House of Lords (upper house of parliament) -- in return for secret loans.

Levy returned to a police station today to answer more questions, and a spokesman for him called his arrest an ''entirely theatrical'' stunt that whipped up a ''media circus''.

''Lord Levy has always been ready and willing to co-operate and to meet the police at any time of their choosing,'' the spokesman said in a statement.

''This underlines that the arrest was unnecessary, disproportionate and, as has been described by others, entirely theatrical. The only result has been a media circus which has distracted from the issues under consideration.'' Police Deputy Assistant Commissioner John Yates updated a parliamentary committee on the police investigation. Committee chairman Tony Wright said almost 50 people had been interviewed so far, the majority from the opposition Conservative Party.

Three people had refused to be interviewed and committee members said these were lenders to the Labour Party.

''The waters are lapping around the prime minister's ankles,'' Scottish nationalist leader Alex Salmond said after Levy's arrest yesterday.

MORI pollster Robert Worcester told Reuters: ''I think it is one of the many nails in Blair's coffin. His authority is dissipating day by day and his loyalists are fewer and fewer.'' After Levy's arrest, bookmakers William Hill slashed their odds on Blair quitting this year to 2-1 from 11-4.

Labour came under pressure after it said it had received 14 million pounds (26 million dollars) in loans from 12 businessmen, some of whom were nominated for seats in the House of Lords. A law introduced in 1925 makes it illegal to sell Lordships.

Blair, who led Labour to an unprecedented third electoral victory last year, has pledged not to stand for a fourth term, but has not said when he will step down.

In recent months several ministers have been hit by scandal, including Deputy Prime Minister John Prescott, who admitted to an affair, and ex-Home Secretary Charles Clarke, sacked after it emerged foreign criminals were freed instead of being deported.

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