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UPDATE 1-South Africa's business lobby group suspends KPMG over Gupta scandal

(Adds BLSA)

JOHANNESBURG, Sept 22 (Reuters) - A South African business lobby group suspended KPMG from membership on Friday, citing the "gravity" of its conduct over the auditor's work for business friends of President Jacob Zuma.

KPMG dismissed its South African division's top management last week following an internal investigation which found that work it did for firms owned by the Gupta family, a trio of businessmen accused by a watchdog of improperly influencing the award of government contracts, "fell considerably short" of KPMG's standards.

Business Leadership South Africa (BLSA) said KPMG's membership would be suspended pending the outcome of an independent investigation into its conduct.

The firm is already being investigated by the country's Independent Regulatory Board of Auditors for its work for the Gupta firms.

"BLSA recognizes the considerable steps announced by KPMG to change its leadership and commence a process of cultural change," it said on a statement. "It cannot, however, look past the gravity of their conduct which is completely inconsistent with the values of BLSA."

BLSA's move is another blow for the local arm of KPMG, which has already lost at least three clients due to the scandal, while several other large companies that include Barclays Africa and Investec are reviewing their ties with the firm.

Meanwhile South Africa's second largest bullion miner Gold Fields said on Friday KPMG would for now continue to serve as its external auditor.

"The Gold Fields board of directors has considered the matter and will be closely following future developments in this area. KPMG remain the company's external auditors," the company said in a statement.

KPMG is the third global firm to face questions about its work for the Indian-born Gupta brothers.

Consulting giant McKinsey is being investigated by South Africa's parliamentary committee on public enterprises, and the British-based public relations agency Bell Pottinger collapsed last week following a scandal over a racially-charged political campaign it ran for the Guptas in South Africa.

The Guptas and Zuma deny wrongdoing and say they are victims of a politically motivated witch-hunt. The Guptas and their companies have not been charged with any crime. (Reporting by Tiisetso Motsoeneng and TJ Strydom; Editing by Joe Brock, Greg Mahlich)