Murdochs change mind, agree to answer UK committee's questions
* U.S. Attorney General says investigations of News Corp "progressing"
* Police arrest former News of World deputy editor
By Kate Holton and Georgina Prodhan
LONDON, July 15 (Reuters) - Rupert Murdoch and his son James have bowed to pressure to answer questions from Britain's parliament over alleged phone hacking crimes at one of his newspapers and the U.S. Attorney General said a similar investigation was underway in the country.
"There have been members of Congress in the United States who have asked us to investigate those same allegations and we are progressing in that regard using the appropriate Federal law enforcement agencies," Attorney General Eric Holder told reporters at a conference in Sydney,Australia.
The Federal Bureau of Investigation has said it was looking into allegations News Corp tried to hack into the phones of 9/11 victims.
The public disgust that erupted over reports that one of Murdoch's News Corp newspapers had hacked into the voicemails of murder victims has so far forced Murdoch to shutter the offending tabloid, Britain's News of the World, and back out of a $12 billion business deal to buy the shares he does not own of British satellite broadcaster BSkyB .
Murdoch, long accustomed to having entree to the halls of power in Britain instead of being forced to kowtow, and his son James, 38, his heir apparent, initially had said they would not face questions from the British parliament's media committee over phone hacking.
They reversed their decision on Thursday after Prime Minister David Cameron said they should attend and as politicians across the spectrum united in denouncing the hacking that initially had seemed to focus on celebrities and politicians but has become far more widespread.
British Business Secretary Vince Cable, on BBC radio, said of the swift volte-face by politicians queueing up to condemn the Murdochs: "It is a little bit like the end of a dictatorship when everybody suddenly discovers they were against the dictator."
Rebekah Brooks, who runs Murdoch's British newspaper arm, News International, also has agreed to be grilled by the committee. She was a friend of Cameron, who has echoed calls for her to resign.
Speculation was growing at News International's east London headquarters that the company might be reconsidering its position on Brooks after resisting pressure for her to quit, a source familiar with the situation said.
A major News Corp shareholder said Brooks should quit because of the scandal that has engulfed the company.
"For sure she has to go, you bet she has to go," Saudi billionaire Prince Alwaleed bin Talal told the BBC's Newsnight programme. Alwaleed says his Kingdom Holding is the second biggest shareholder in News Corp and controls seven percent of the votes.
Murdoch has denied that News Corp was drawing up plans to separate its newspaper holdings, which are at the heart of the controversy, from the rest of the media company.
It includes the Fox broadcast network in the U.S., the 20th Century Fox movie studio and newspapers around the world, including The Wall Street Journal, the New York Post and Britain's The Times and the Sun tabloid.
"HANDLED CRISIS WELL"
Murdoch said News Corp had handled the crisis "extremely well in every way possible" making just "minor mistakes" and called reports he would split off his newspaper assets "pure rubbish".
Speaking to The Wall Street Journal, Murdoch said his son had acted "as fast as he could, the moment he could" to deal with the scandal.
The Australian-born media mogul's comments came as he faced investigations on both sides of the Atlantic.
In addition to the probe by British lawmakers keen to break his grip on politics, the Federal Bureau of Investigation said it was looking into allegations News Corp tried to hack into 9/11 victims' phones.
"We are aware of the allegations and are looking into it," said Peter Donald, an FBI spokesman in New York.
The phone-hacking scandal deepened on Thursday with the arrest by British police of a ninth suspect, Neil Wallis, a former deputy editor of News of the World, on suspicion of conspiring to intercept communications.
His detention added weight to a government call for the media regulator to decide whether Murdoch's business was fit to run British television stations.
In addition, Britain's senior police chief came under fire after his force said Wallis had been hired as a consultant by the police.
Paul Stephenson, London's police commissioner, was summoned for a 90-minute meeting with the city's mayor after the capital's force said it had employed the journalist between October 2009 and September 2010.
The disclosure was an embarrassment for a police force facing questions about its links to tabloid reporters and prompted Home Secretary (interior minister) Theresa May to write to Stephenson asking for an explanation.
RESTRICTED IN WHAT MAY SAY
Brooks, who edited the News of the World at the time of one of the most serious alleged incidents, said the police inquiry might restrict what she could say. Her concern was echoed by James Murdoch in a letter to the committee confirming his and his father's attendance.
The session is certain to be hostile. During a heated debate on the hacking scandal on Wednesday, Dennis Skinner, a veteran left-wing Labour member of parliament described Murdoch as "this cancer on the body politic".
Murdoch and other senior executives have denied any knowledge of the alleged practices which are having repercussions around the world.
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