UPDATE 3-French budget minister faces tax fraud probe
* Paris prosecutor to open tax probe into budget minister
* Minister says inquiry will prove his innocence
* News website maintains allegation of secret Swiss bank account
PARIS, Jan 8 (Reuters) - French prosecutors are to open a preliminary investigation into Budget Minister Jerome Cahuzac over allegations that he had a secret bank account in Switzerland, the Paris prosecutor's office said on Tuesday.
Cahuzac, who is leading a government crackdown on tax evasion, has vigorously denied a report by the French investigative news website Mediapart that he held an undisclosed account at the Swiss bank UBS until the start of 2010.
He said he would welcome an inquiry that he was confident would prove his innocence.
President Francois Hollande's office said Cahuzac had the full support of the government and that the investigation would enable justice to be done.
The investigation is nevertheless a huge embarrassment for Hollande's eight-month-old Socialist government, which has made raising income and capital gains taxes on the rich a central plank of its economic policy.
A preliminary investigation could take several months and would lead either to Cahuzac being placed under formal investigation or to the case being dropped for lack of evidence.
"Jerome Cahuzac welcomes the Paris prosecutor's decision," his office said in a statement. "This step will, as he has always said, show his complete innocence of the absurd allegations that he has been subjected to."
Mediapart chief Edwy Plenel told I>Tele television that he stood by the story.
Mediapart published its first report on the affair in early December and followed up by posting a recording of a telephone call, which it said dated from 2000, in which a male voice it cited as Cahuzac's mentions an account he held at UBS.
Cahuzac has filed legal complaints against the website and repeated his denial of the allegations on France 2 television late on Monday. He said the voice in the recording was not his.
The prosecutor's office said that, given the sensitivity of the allegations and the time it would take to process Cahuzac's complaints, it had no option but to open an inquiry immediately.
"The Paris prosecutor has as a result decided to open a preliminary investigation for tax fraud," it said.
Cahuzac is the first minister in Hollande's government to be accused of misconduct, just as Hollande's approval ratings are sliding into the mid-30s, due largely to a lack of faith that he can bring down rampant unemployment and restore economic growth.
Hollande promised during his campaign a year ago that his government would be beyond reproach.
"There is one question we need to ask our government, prime minister and president," Mediapart's Plenel told I<Tele.
"Can the budget minister, the head of the tax administration, carry out his work properly and legitimately when there is enough evidence to open a preliminary investigation?"
Prime Minister Jean-Marc Ayrault's office declined to comment.
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