By Stella Mapenzauswa
JOHANNESBURG (Reuters) - South Africa's ruling party backed Finance Minister Pravin Gordhan on Tuesday but urged him to cooperate with police investigations, days after Gordhan declined to meet detectives looking into his time at the tax office.
Gordhan said last week he had done nothing wrong and had no legal obligation to obey a police summons over the inquiry into whether he used a surveillance unit set up when he was head of the tax service to spy on politicians.
State prosecutors have denied suggestions in local media that Gordhan could be charged over the investigation; but the speculation has hit South African assets.
The main opposition party Democratic Alliance said last week the police investigation into Gordhan was a "witch-hunt".
Political commentators say the probe is supported by a faction allied to President Jacob Zuma, who is said to have been among the politicians spied on by the tax surveillance unit.
Zuma - who has said he backs Gordhan but cannot stop the investigation - has denied warring with the finance minister.
"The ANC reaffirms its unreserved confidence in the Minister," the African National Congress (ANC) Secretary General Gwede Mantashe said, warning that speculation over the minister was hurting the economy and the case could be dealt with better.
The rand gained after Mantashe expressed confidence in Gordhan but then went into reverse, falling 0.6 percent to a session low, after he said the minister must obey the police summons.
"The minister must cooperate with processes. If he has no case to answer he can only prove that through processes," Mantashe told a news conference.
Mantashe said the investigation into Gordhan should be carried out in a manner that does not embarrass the minister.
"All we are saying is that please deal with this matter in a decent way. We don't say Pravin Gordhan must be untouchable," he said, adding the probe should be conducted without "having an element of humiliating this minister."
Analysts said the ANC was split on how to handle the fallout from the Gordhan investigation.
"The ANC is also divided on the question of whether the Minister of Finance Pravin Gordhan should remain or should be removed which ever way it turns it will affect the ANC," said Professor Shadrack Gutto, a law lecturer at the University of South Africa.
TREASURY, ESKOM ROW
Mantashe also said the ANC was concerned about a dispute between the Treasury and state-owned power utility Eskom.
The Treasury on Monday accused Eskom executives of blocking the probe of coal contracts between the utility and a company linked to the wealthy Gupta family that is accused of holding undue political sway over Zuma.
Eskom said it was cooperating with investigations and had not been involved in any wrongdoing.
The Public Enterprises Minister Lynne Brown said she was concerned that the row could lead to the utility being downgraded by credit rating agencies and ordered the utility to provide a report to facilitate the probe.
The utility later said it sent the report to the Treasury.
"It has been unfortunate that Eskom and National Treasury have also taken their disagreement to the public domain on matters relating to procurement issues," Mantashe said.
In another public spat between the Treasury and a state-run company, South African arms maker Denel said late on Tuesday it would fight a bid to halt a joint venture it has been pursuing called Denel Asia.
Local media have reported that the company is linked to the Gupta family but Denel said this was not the case and there were no grounds for the Treasury to block the joint venture.
"The allegations that Denel is 'captured by the Guptas' are unfounded and politically motivated. The Gupta family has no business joint venture with Denel and none of the Gupta family members or relatives are shareholders in Denel Asia," Denel said in a statement.
(Additional reporting by Tanisha Heiberg and Zimasa Mpemnyama and Ed Stoddard; Writing by James Macharia; editing by Ralph Boulton)