UK's Brown denies knowledge of Labour loans

LONDON, Dec 15 (Reuters) British Chancellor of the Exchequer Gordon Brown said today he had not nominated anyone for a Labour peerage and denied any knowledge of loans to the party in a scandal rocking Prime Minister Tony Blair.

Police interviewed Blair on Thursday as investigations into allegations that party donors had been offered peerages in exchange for large loans finally reached the top.

Brown, tipped to succeed Blair next year, also dismissed what he termed the ''unfounded allegations and smears''.

The rumours have been swirling around the party for months.

''At no point until loans were made public did Gordon Brown have any knowledge of any loans to the Labour Party,'' his spokesman said.

''In relation to fund-raising -- whether loans or donations -- he has always considered it inappropriate for him in his position as Chancellor to have any involvement,'' he added.

Police launched an inquiry in March into allegations by an opposition party that Blair's Labour Party and other political parties had nominated people for seats in parliament's upper house, the House of Lords, in exchange for party funding.

Blair was the first British prime minister since Lloyd George in the 1920s to be questioned by police in a cash-for-honours probe.

That investigation resulted in a 1925 law making it illegal to sell state honours.

However, the fact Blair was only questioned as a witness softens the blow.

Police have interviewed most members of Blair's 2005 cabinet.

They wanted to know if ministers were aware that four rich businessmen who helped bankroll Labour's 2005 election campaign had been nominated by Blair for seats in the unelected House of Lords, known as peerages.

Police have said they hope to send evidence to prosecutors in January.

REUTERS PDS PM0132