News International hit out today at "fantasy" allegations made about Rupert Murdoch's "sinister" back-room dealings with politicians.

Robert Jay QC, counsel for the Leveson Inquiry, was accused of "headline grabbing" by suggesting the media mogul was suffering "selective amnesia" about his discussions with Margaret Thatcher.

The idea that the pair had made an implicit pact over lunch in 1981 to allow his purchase of The Times was a "science fiction theory", according to the company's barrister Rhodri Davies QC.

"This is the stuff of fantasy," he told Lord Justice Leveson. "Deals cannot be done through telepathy. What are the terms? What is the duration, what is the quid pro quo?"

Murdoch also had no reason to lie about having no recollection of the key lunch at Chequers, as Mr Jay suggested last week in "headline-grabbing style", he added.

"Mr Murdoch has nothing to lie about. The documents tell the story."

Davies accused Mr Jay of suggesting it was "sinister" for newspapers such as The Sun to back politicians they agree with.

"That is exactly what they are meant to do, and are expected to do, as agents of a free press in a democracy," he said.

"In Mr Jay's hands, the characteristics of a large readership, floating voters, an absence of immutable party loyalties, begin to sound sinister."

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