Clouds over Olmert in Israel as he visits China

BEIJING, Jan 10 (Reuters) Israeli Prime Minister Ehud Olmert, responding to a television report he could face criminal investigation, denied today any wrongdoing in the sale of a bank and appointments to a business authority.

Israel's Channel ten said yesterday police intended to question Olmert about his role in the 2005 privatisation of Bank Leumi, when he was finance minister, and in the staffing of the government-funded Small and Medium Business Authority in 2004.

For Olmert, whose approval rating has dropped to 23 per cent, the report was particularly ill-timed, coinciding with a visit to China that showcased Israel's close ties with the world economic powerhouse.

Asked by reporters who accompanied him to Beijing whether his hands were clean in the two cases, he replied: ''Unequivocally, yes.'' Responding to the Channel ten report, the Justice Ministry said: ''We will make a formal announcement only after the investigation into these sensitive matters is completed, but not beforehand.'' Olmert said the ministry's statement spoke for itself.

''From what I heard from the Justice Ministry, this is at an absolutely preliminary stage,'' he told reporters. ''When there is something to respond to, I'll respond.'' Israeli newspapers carried the report that police could question Olmert alongside coverage of the China visit, a trip largely aimed at conveying Israel's concern over Iran's nuclear programme.

''PM likely to face two criminal probes within two weeks,'' read a front-page headline in the Haaretz newspaper over a photograph of Olmert milking a cow at a Chinese dairy farm.

Israeli prime ministers have been caught up in a slew of corruption scandals in recent years that failed to result in criminal charges.

The new whiff of scandal at the top and a police probe, now gathering speed, of alleged bribe-taking in Israel's tax authority have led some political commentators to ponder whether governance in the Jewish state is rotten to the core.

PLUNGING POPULARITY Olmert, awaiting the results of an official inquiry into last summer's inconclusive Lebanon war, went to China a wounded leader -- though still in charge of a governing coalition of partners showing few signs of rebellion with scheduled elections three years away.

Israel's state comptroller is looking into whether Olmert promoted the interests of two businessmen, described in media reports as close friends of the prime minister, in the state sale of Bank Leumi two years ago.

Neither of the men purchased the bank and Olmert has denied any wrongdoing.

A close Olmert aide, Shula Zaken, is under house arrest in connection with the tax authority investigation, which is focused on suspicions that influential businessmen arranged the appointment of officials to the body and then got tax breaks.

Appointments to the authority go through the prime minister's office. Olmert himself has not been questioned nor accused of any personal involvement in the probe, but it has drawn new criticism of the functioning of his administration.

The state comptroller, Israel's main government watchdog, is also examining the terms of Olmert's purchase of a Jerusalem apartment in 2004.

Reuters BDP GC2159