Still in her job ... Rebekah Brooks, pictured with Rupert Murdoch. Credit:Reuters The final edition would be free of advertising and proceeds would go "to causes and charities that wish to expose their good works to our millions of readers", he said in a statement. "These are strong measures. They are made humbly and out of respect. I am convinced they are the right thing to do. "While we may never be able to make up for distress that has been caused, the right thing to do is for every penny of the circulation revenue we receive this weekend to go to organisations - many of whom are long-term friends and partners - that improve life in Britain and are devoted to treating others with dignity." One devastated staff member said the announcement went off like a "nuclear bomb" in the offices of Britain's second biggest selling newspaper, whose diet of kiss-and-tell stories sold 2.7 million copies a week.

Andy Coulson ... reportedly faces arrest on Friday. Credit:Getty Images The BBC quoted sources as saying Mr Murdoch would replace it with a Sunday version of The Sun, his daily tabloid, which is Britain's biggest selling newspaper. BSkyB bid Rebekah Brooks ... James Murdoch is standing by her. Credit:Reuters Its closure sparked immediate speculation that Rupert Murdoch was offering the paper as a sacrificial victim to save his $US14 billion bid for control of pay-TV giant BSkyB, which is the subject of an upcoming government decision. The company already owns 39 per cent of BSkyB.

Stephen Adams, a fund manager at Aegon Asset Management, which is one of the biggest shareholders in BSkyB, told Reuters he saw News Corp's move as aimed at restoring or remedying a tarnished reputation. If she had gone at the start of the week, we’d all still be employed. I hope she's worth it for Rupert. "But we also critically see it as a reflection of News Corp's desire to progress the BSkyB bid and have full ownership of the company," he said. Cameron's right-of-centre government had already given an informal blessing to the takeover, despite criticism on the left that it gave Murdoch too much media power. "I don't see how this (BSkyB) deal can go ahead. It's politically totally unacceptable now," said Alex Degroote, media analyst at Panmure Gordon. "To me, it's an explicit admission of culpability."

Still, others said that any attempt to block the BSkyB deal at this late stage would likely spark a legal challenge from News Corp, and one the company would likely win. A delay is likely, "but they can't delay it forever so barring some major development this deal is going to get agreed," said media consultant Steve Hewlett. Links to PM David Cameron Prime Minister David Cameron - who had himself faced pressure for his ties to Mr Murdoch - said the closure of the News of the World should not distract from an ongoing police investigation into the hacking. "What matters is that all wrongdoing is exposed and those responsible for these appalling acts are brought to justice," Mr Cameron's Downing Street office said in a statement.

He repeated his pledge to hold public inquiries into practices at the News of the World and into an earlier botched police probe into the issue. Mr Cameron's former media chief Andy Coulson was editor of the tabloid at the time of much of the hacking, while the Prime Minister has faced scrutiny for his friendship with Rebekah Brooks, News International's chief executive. The Guardian reported that Coulson will be arrested on Friday over suspicions he knew about the hacking. Sky News reported that, although News of the World employees were told Brooks offered to resign last night, she did not leave her job. News International said she did not offer to quit, but had discussed her resignation with Rupert Murdoch.

A reporter at the tabloid who spoke to The New York Times anonymously said there was widespread anger in the newsroom and a belief that Brooks sacrificed the staff to save her position as chief executive of News International. The unnamed reporter said: "If she had gone at the start of the week, we'd all still be employed. I hope she's worth it for Rupert." But James Murdoch repeated his father's earlier defence of Brooks, saying he was confident she was not aware of hacking during her own stint as editor. "I am satisfied that Rebekah, her leadership of this business and her standard of ethics and her standard of conduct throughout her career, are very good," James Murdoch said in a television interview. Two hundred staff will lose their jobs at the paper and they have been told they can apply for other jobs within News International.

News of the World associate editor David Wooding described the atmosphere in the newsroom when the closure was announced as "if a nuclear bomb had gone off". There were gasps and sobbing as staff were told of the closure of the title, which from its earliest days in the Victorian era sought to titillate the British working class with sensational journalism about sex and crime. "Everyone was standing around looking dazed. Everyone kept saying - how could it get any worse?" he told the BBC. "No one had any inkling at all that this was going to happen," said Jules Stenson, features editor of News of the World. In his statement, James Murdoch admitted that the paper had lied to Parliament and to the public in its earlier statements on the long-running scandal.

He said that if allegations that a private investigator working for the tabloid hacked the voicemail of Milly Dowler, a 13-year-old girl who was later found murdered, were true, they were "inhuman". "The News of the World is in the business of holding others to account. But it failed when it came to itself," he added. "Wrongdoers turned a good newsroom bad and this was not fully understood or adequately pursued." He said the conviction in 2007 for phone hacking of the paper's royal correspondent Clive Goodman and private investigator Glenn Mulcaire had failed to cure the problem. But the death blow for the News of the World came on Thursday when veterans' charity the Royal British Legion dropped its campaign partnership with the paper over claims in London's Telegraph that an investigator hired by the tabloid might have accessed the voicemails of relatives of dead soldiers. Supermarket giant Sainsbury's, mobile phone operator O2, energy supplier Npower and high street stores Dixons, Boots and Specsavers had joined a growing list of companies to pull advertising from the paper.

British media lawyer Mark Stephens of Finers Stephens Innocent told Reuters that if News of the World was to be liquidated, it would be "a stroke of genius - perhaps evil genius", as the paper might be able to use the move to destroy documents containing information about whose phones were hacked and how. Loading Meanwhile, Scotland Yard said up to 4000 people may have had their voicemails accessed by the News of the World and added that it was probing claims that the paper had paid policemen for information. AFP/Reuters with smh.com.au

