The judge presiding over an inquiry into British press standards on Monday rebuked the head of Sky News, the influential news channel of Rupert Murdoch-controlled BSkyB, for breaking the law by hacking into emails to generate a story.

Prime Minister David Cameron ordered judge Brian Leveson to examine standards after Murdoch's now-defunct News of the World tabloid admitted hacking thousands of phones to produce ever-more salacious stories.

BSkyB, the highly profitable satellite broadcaster 39-percent owned by Murdoch, had previously avoided any fall-out from the hacking scandal but its admission this month that it accessed private emails for a story in 2008 on insurance fraud risked dragging the company into the frame.

John Ryley, the head of Sky News, has defended the channel's actions and said it was acting in the public interest, but Leveson appeared annoyed as Ryley and a barrister in the inquiry discussed whether the action broke the Ofcom broadcasting code.

Ryley had just taken the oath at the high profile media inquiry and had started to explain the 2008 email hacking when Leveson interjected.

What you were doing wasn't merely invading somebody's privacy, it was breaching the criminal law, Leveson said to Ryley.

It was, Ryley replied after a pause.

Well where does the Ofcom broadcasting code give any authority to a breach of the criminal law, Leveson asked.

It doesn't, Ryley replied.

Britain's media regulator Ofcom said earlier on Monday it had launched its own investigation into Sky News over the email hacking admission. Sky said it passed information onto the police that helped to secure a criminal conviction.

Ofcom is investigating the fairness and privacy issues raised by Sky News' statement that it had accessed without prior authorization private email accounts during the course of its news investigations, an Ofcom spokesman said.

We will make the outcome known in due course.

FAKE DEATH

The story involved was the bizarre case of the so-called canoe man who faked his own death after paddling out to sea. Sky News said the information it found was given to police and helped to secure the conviction of the man's wife over an insurance fraud.

Ofcom is already looking closely at parent company BSkyB as to whether its owners and directors are fit to own a broadcast license in line of the problems at the newspaper division.

The influential Sky News channel is the only challenger to the state-funded BBC in British 24-hour television news, and is often first to break stories.

Ryley also apologized for an earlier statement made to the Leveson inquiry asserting that no Sky journalists had intercepted communications, but at the end of the 80 minute hearing was given the chance to state that Sky News was entirely separate from the newspaper division of News Corp.

Our journalistic endeavors, our journalistic activities, our management structures are very separate, he said.

Financial and media analysts have said that although the timing of the admission was unfortunate for BSkyB, they did not see the issue as causing any long-term damage to the company.

Ofcom wouldn't want to be in a position where it says we would allow a news editor to make a judgment of this kind any time they feel like it, media consultant Claire Enders told Reuters.

It will result in a slap on the wrists for John Ryley. But we're not expecting anything serious.

The Leveson Inquiry has gripped audiences around the world as evidence from celebrities, politicians and crime victims whose phones were hacked by Murdoch journalists has been shown live on the Internet.

The investigation is now turning its attention to the relationships between Britain's press and politicians and James Murdoch, who has stepped down as chairman of BSkyB but remains on the board, will appear before the inquiry on Tuesday.

His father Rupert will appear on Wednesday and Thursday.

(Reporting by Kate Holton and Georgina Prodhan; editing by)

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