By Andrew Cawthorne and Wangui Kanina
NAIROBI (Reuters) - A Kenyan government report into the secretive sale of a luxury Nairobi hotel has recommended the finance minister and central bank governor step down to allow a full investigation into the "fraudulent" transaction.
The report, from a five-member team led by Attorney-General Amos Wako, followed a no-confidence vote by Kenya's parliament against Finance Minister Amos Kimunya.
Anti-graft watchdogs and some ministers have sharply criticised the no-bid sale of the Grand Regency to a group of investors, including Kenyans and Libyans, as the latest example of high-level corruption in east Africa's largest economy.
The government said in a statement on Thursday it had blocked completion of the deal "to protect the property until the government finalises ... the issues which have arisen in regard to the sale transaction of the property".
The dispute has also deepened tensions in factions of Kenya's already fragile coalition government, trying to keep the peace after a bloody post-election dispute earlier this year.
Prime Minister Raila Odinga called ministers of the cabinet's finance committee together on Thursday to discuss the fast-moving controversy that is filling Kenya's front pages and provoking outrage among its people.
Odinga said he had no indication Kimunya was on the verge of resigning: "He remains minister until otherwise announced."
The prime minister added, however, that the government would deal "very, very effectively" with any cases of misuse of public funds. "Any kind of breach is not going to be tolerated."
CALLS TO STEP DOWN
The Wako-led report recommended that Kimunya and Central Bank Governor Njuguna Ndung'u step down over a deal that was "false, fraudulent and designed to deceive", according to a version read to Reuters by an aide to the team.
Kimunya, who said the hotel went for 2.9 billion shillings last week, told parliament on Wednesday "my hands are totally clean".
He said the money was in two accounts, at the Central Bank and the National Industrial Credit bank. Nonetheless, speculation in Kenya about kickbacks remained rife.
Political critics say the government asset was sold in secret at a knockdown price. Some analysts say the price was fair and in fact may have been higher than average.
In the capital Nairobi, police used teargas to disperse dozens of students protesting outside parliament chanting "Kimunya must go".
The Grand Regency affair has had a marginally unsettling effect on local financial markets, with the shilling currency down 2 percent against the dollar this week.
Despite the no-confidence vote, it will be up to President Mwai Kibaki to decide whether his minister stays in office.
Kimunya, 46, has run the Finance Ministry since 2006.
Despite his relative youth, Kimunya is a part of Kibaki's inner circle of aides from the dominant Kikuyu ethnic community derided by foes as the "Mount Kenya Mafia" due to their origins in central Kenya around the nation's largest mountain.
Until the hotel saga, Kimunya was generally well-regarded by local markets and foreign investors as a steady hand who maintained the economic growth Kenya has enjoyed since Kibaki took over in late 2002.
This year, he is struggling to minimise the damage to the economy from the post-election crisis that killed 1,500 people, uprooted 300,000 and damaged key sectors of the economy.
