A US company that provides security for US diplomats in Iraq has denied as "baseless" allegations that it was involved in weapons smuggling.

Blackwater's statement follows reports of a US investigation into allegations that some employees sent unlicensed weapons and equipment to Iraq.

The weapons could have been used by a group labeled as terrorist by the US.

Blackwater has been blamed by Iraqi officials for a Baghdad gunfight in which 11 civilians died last Sunday.

The North Carolina-based company - which has been hired by the US state department to guard American diplomatic staff in Iraq - has said its employees acted in self-defense.

Blackwater had its license to operate in Iraq withdrawn by the Iraqi authorities following the shootout, but resumed limited operations on Friday.

Meanwhile, the Iraqi interior ministry said it was also investigating if Blackwater had been involved in six other violent incidents in Iraq that left at least 10 people dead.

'Hazy situation'

The weapons smuggling allegations were reported by the News and Observer newspaper in North Carolina.

It quoted two unnamed sources as saying US federal prosecutors were investigating whether any Blackwater staff had shipped weapons, night-vision scopes, armor, gun kits and other equipment to Iraq, without the required permits.

The newspaper said that in January two former members of staff with the firm had pleaded guilty in Greenville, North Carolina, to weapons charges and the pair were now co-operating with federal investigators.

In Saturday's statement, Blackwater said the allegations that it was "in any way associated or complicit in unlawful arms activities are baseless".

"The company has no knowledge of any employee improperly exporting weapons."

The statement did not refer to Iraq.

But it confirmed that two members of staff had been sacked for stealing company property, without specifying when the action was taken.

"When it was uncovered internally that two employees were stealing from the company, Blackwater immediately fired them.

"The employees, who were former marines and law enforcement, have been convicted and are currently negotiating sentencing in Raleigh [North Carolina] with federal prosecutors," the statement said.

Responding to allegations that Blackwater employees were the subject of an Iraq arms smuggling probe, the spokeswoman told the BBC News website: "We are aware of that report and we have yet to see definitive proof that the firm in question is Blackwater.

"I'm not saying it's not, as sometimes these things can happen, but it's a hazy situation."

The allegations of arms smuggling in Iraq by a North Carolina firm came to light earlier this week in a written statement from the state department's inspector general, Howard Krongard.

In July, Turkey complained to the US that they had seized American weapons from the outlawed Kurdistan Workers Party (PKK), designated a terrorist organisation by Washington.

Investigators are reportedly attempting to determine if any Blackwater weapons could have been sold on the black market and ended up in the hands of the PKK.

PHOTO CAPTION

Blackwater guards in Baghdad