* Cameron knew minister supported the deal before appointment
* Takeover is key issue in Murdoch's role in Britain
* New evidence puts pressure on Cameron and Hunt
By Kate Holton and Michael Holden
LONDON, May 24 (Reuters) - Prime Minister David Cameron gave the job of ruling on a multi-billion dollar takeover by News Corp to a minister he knew supported the deal, an inquiry heard on Thursday, reigniting accusations he was in hock to Rupert Murdoch.
Jeremy Hunt, the Culture Secretary who was handed the task of deciding whether to support Murdoch's $12 billion bid for BSkyB, had previously sent a memo to Cameron detailing his view that the takeover would be good for Britain.
Critics say Cameron was far too close to figures at Murdoch's British newspaper arm News International and assiduously courted them in his drive to become Prime Minister.
He has since been embarrassed by a series of revelations shedding light on the close ties, including the details of weekend gatherings with Murdoch family members and executives at their respective country homes.
However, the suggestion of impropriety over the BSkyB deal, which required the government to take an independent, quasi-judicial stance, could be even more damaging and piles more pressure on an already embattled Hunt.
"The Prime Minister should never have given him the job," said Harriet Harman, deputy leader of the opposition Labour party. "It is clear that Jeremy Hunt was not the impartial arbiter he was required to be, and he should already have resigned."
The takeover has become a key issue in the long-running controversy in Britain over whether Murdoch and his newspaper executives have undue influence over government, in part because the tabloids can be used to make or break a political career.
Murdoch eventually had to ditch the planned takeover amid public outcry over phone-hacking by journalists at his Sunday tabloid, the News of the World.
The latest characters to be dragged in to the row are Adam Smith, a fresh-faced aide to Hunt and Fred Michel, a News Corp lobbyist, who between them exchanged hundreds of texts, phone calls and emails as Hunt weighed whether to approve the deal.
Giving evidence to a press ethics inquiry called as a result of the phone-hacking scandal, Smith, 30, denied that Hunt had been a "cheerleader" for News Corp's bid.
Cameron gave Hunt oversight of the process in December 2010 after another minister who held the task was secretly recorded by a newspaper as saying he had "declared war" on Murdoch.
In a draft memo sent to Cameron just a month earlier, Hunt said opponents to the takeover should be ignored and that Murdoch's son James, the former chairman of BSkyB, was angry the matter had been referred to regulators.
"The UK has the chance to lead the way but if we block it our media sector will suffer for years," the memo said. "We must be very careful that any attempt to block it is done on genuine plurality grounds and not as a result of lobbying by competitors.
"I think it would be totally wrong to cave in to the (BBC chief) Mark Thompson, Channel 4, Guardian (newspaper) line that this represents a substantial change of control given that we all know Sky is controlled by News Corp anyway."
Cameron's office said his note was consistent with public comments he had made at the time and that the prime minister had not tried to influence the process in any way.
"The questions that follow are rather more serious on the face of it for Cameron than they are for Hunt," said Steve Hewlett, a media consultant who has watched the inquiry closely.
However, he noted it would have been difficult to find any minister who did not have an opinion on the deal at that time.
Under questioning, the 30-year-old Smith, who rose quickly to a senior government role during his career working for Cameron's Conservative Party, did not appear to appreciate what a quasi-judicial role meant, an important issue for a deal that was market sensitive.
The market cap of BSkyB, Britain's dominant pay-TV firm, rose by more than 2 billion pounds between December 2010 and when the bid fell apart in July 2011.
Despite being in regular contact with Michel, Smith said he had no contacts with those who were against Murdoch's bid and told the inquiry he did not believe this was a problem.
"Nobody ever said where did you hear this or you shouldn't be doing that. I don't think anybody was surprised that that was the role (I had)," he said.
Asked if he had backed the takeover, he said: "Very broadly. I didn't, to be honest with you, particularly mind either way whether it happened or not. In a funny sort of way I couldn't quite see why everyone was getting quite so worked up."
Revelations last month about the extent and nature of the contacts between News Corp and Smith sparked vociferous calls for Hunt to resign, although he described as laughable the accusation that he had given News Corp special treatment.
However, asked about the issue on Thursday, Cameron's spokesman repeatedly dodged questions on whether Hunt could have misled parliament during a statement he gave about his contacts with News Corp.
"He is soon to appear before the Leveson inquiry and he will provide answers to all of these questions," the spokesman said.
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