* Court hears of affair at heart of Murdoch empire
* Brooks, Coulson both later close to PM Cameron
* Prosecution says both knew of hacking by reporters
* Defendants deny charges
By Kate Holton and Michael Holden
LONDON, Oct 31 (Reuters) - Rebekah Brooks and Andy Coulson,two former editors of Rupert Murdoch's now defunct News of theWorld tabloid, were having an affair at the time their reportersare accused of hacking into phones, a court heard on Thursday.
Prosecutor Andrew Edis said the intimacy of theirrelationship indicated each knew as much as the other about howtheir reporters were operating. Both have denied conspiring tohack into phones or making illegal payments to public officials.
"What Mr Coulson knew, Mrs Brooks knew too. What Mrs Brooksknew, Mr Coulson knew too," Edis told the court. "That's thepoint."
Coulson went on to become the chief media spokesman forPrime Minister David Cameron while Brooks, a close confidante toMurdoch, went on to be chief executive of News International,the tycoon's British newspaper group.
The revelation of the affair is likely to bring moreembarrassment to Cameron, who has long been accused by criticsof being too close to Murdoch's News Corp media empire.
Murdoch owns The Sun and Times papers and 39 percent ofpay-TV group BSkyB, which opponents say enables him towield too much political influence in Britain.
"Mrs Brooks and Mr Coulson are charged with conspiracy, andwhen people are charged with conspiracy the first question thejury have to answer is, how well did they know each other?" Edissaid. "How much did they trust each other?"
The affair went on from 1998 to 2004, Edis told the jury atLondon's Central Criminal Court.
Brooks and Coulson showed little reaction to the revelationas they sat side-by-side in the glass dock along with six otherdefendants, including Brooks's husband Charlie, whom she marriedin 2009.
The prosecutor said the relationship was discovered afterpolice found a document containing a 2004 letter on a computerat Brooks's home. Brooks wrote the letter to Coulson after hetried to break off the relationship, Edis said.
"The fact is you are my very best friend, I tell youeverything, I confide in you, I seek your advice, I love you,care about you, worry about you, we laugh and cry together," theletter said, according to Edis who read it out to the jury ofnine women and three men.
"In fact without our relationship in my life I am not sure Iwill cope."
Edis told the jurors that it was not the affair in itselfthat was important to the prosecution's case.
"It isn't simply that there was an affair, it isn't to dowith whether they have sexual relations with one another, (it isto do with) how close were they ... and they were very close,"he said.
Revelations about phone-hacking engulfed News Corp duringthe summer of 2011, forcing the closure of the 168-year-oldtabloid News of the World and embarrassing senior politiciansand police who were shown to have very close links to pressbarons including the 82-year-old Murdoch.
Earlier on Thursday, the jury heard that Brooks and Coulsonhad authorised huge payments to the man behind the hacking at atime when the News of the World was drastically cutting costs.
Brooks and Coulson ordered senior staff to slash budgets butallowed about 100,000 pounds ($161,000) a year to go to GlennMulcaire, the private detective who has admitted tapping mobilephone voicemails for their paper.
"What was so special about him?" Edis asked the jury ofMulcaire. "Well, what was so special about him was that he wasdoing phone-hacking."
The jury were shown emails which Edis said revealed thetight financial restrictions and the pressure Britain'sbest-selling newspaper was under to maintain sales.
"I am very worried about news desk's spending, what is goingon? It's a disciplinary situation. How am I going to make myselfany clearer?" Brooks wrote in an email to her senior news staffin June 2001 shortly after berating one for spending 7,500pounds on one story.
Showing the pressures within the newsroom, Coulson toldsenior staff in April 2005 that the paper "needed a hit badly,"in terms of the quality of the stories they were breaking. Edissaid the jury would have to decide whether that pressure was afactor in the decision by some staff to break the law.
In a bid to get ahead on salacious front-page stories,reporters on the Sunday tabloid repeatedly hacked the phones ofsenior politicians, royalty and even rival journalists to getbig stories, the jury heard.
"In the dog-eat-dog world of journalism, in this frenzy toget this huge story, and to try and get something better or atleast as good as what everyone else has got, that is what you doif you're Ian Edmondson," Edis told the jury of nine women andthree men.
"You hack the competition."
Edmondson, one of the six others on trial, ran the newsgathering desk at the tabloid when Coulson was the editor.
All eight defendants in the trial deny all the chargesagainst them. The trial is expected to last for six months.
- Company Legal & Law Matters
- Andy Coulson
- Rebekah Brooks
- Rupert Murdoch