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UPDATE 2-India's Gandhi family hit by loan row, DLF shares plunge

* Activists accuse DLF, Gandhi son-in-law of improper deals

* DLF shares fall 7.3 pct

* DLF, Gandhi family member deny accusations

(Updates with share fall, adds quote, details, background)

By Rafael Nam and Aditi Shah

MUMBAI, Oct 8 (Reuters) - The Indian government ruled out aninquiry into allegations of improper dealings between theson-in-law of India's most powerful politician, Sonia Gandhi,and property developer DLF Ltd, even as the firm's sharesplunged on the claims.

Robert Vadra, a flamboyant businessmen who is married to thedaughter of the ruling Congress party chief, has denied theaccusations, levelled by anti-corruption activists, of improperdealings with DLF , India's biggest property developer.

Shares in DLF, which has also denied the allegations,plummeted 7.3 percent on Monday, posting the company's biggestdaily fall since Feb. 22 and wiping $576 million off its marketvalue. Traders said investors were spooked by the allegations.

"I think those who made their allegations have made theirstatement, the company concerned has made a statement and theindividual concerned has made a statement," Finance Minister P.Chidambaram told reporters.

"Now beyond that, I have no facts and unless there is aspecific allegation of quid pro quo or corruption, I am afraidprivate transactions cannot and ought not to be allowed toquestioned on the basis of imputations and insinuations."

India Against Corruption activist Arvind Kejriwal, who issetting up an anti-corruption political party, accused DLF onFriday of arranging favourable loans and real estatetransactions for Vadra. The claims were detailed in a documentposted on the group's web site.

"We would like to state that the business relationship ofDLF with Mr Robert Vadra or his companies has been in hiscapacity as an individual entrepreneur, on a completelytransparent and at an arm's length basis," DLF said in astatement.

"Our business relationship has been conducted to the higheststandards of ethics and transparency, as has been our businesspractices, all around."

Vadra also issued a statement calling the accusations"utterly false, entirely baseless and defamatory".

As a member of India's widely revered "first family", Vadrais close to the centre of power. Sonia Gandhi is known to play amajor role in decision-making on big policy issues and her son,Rahul, is seen by many in the Congress party as a strongcontender to be the next prime minister.

The businessman condemned what he said were attempts to"deliberately misrepresent numbers contained in my financialstatements, manufacture lies and malign my family in order togain cheap publicity for them and for the launch of theirpolitical party".

Vadra married Sonia Gandhi's daughter, Priyanka Gandhi, in1997. A fitness lover with a thin moustache, chiselled torso andenthusiasm for motorbikes, Vadra stepped into the limelight thisyear by announcing a possible move into politics.

(Additional reporting by Arup Roychoudhury, writing by RafaelNam and Matthias Williams; Editing by Robert Birsel)

((rafael.nam@thomsonreuters.com)(+91-22)(6180-7425)(Reuters

Messaging: rafael.nam.thomsonreuters.com@reuters.net))

Keywords: INDIA VADRA/DLF