CARACAS - Venezuelan President Hugo Chavez on Sunday accused Colombian President Alvaro Uribe of lying in a dispute over his efforts to free rebel hostages, saying he had "frozen" ties because of the spat that threatens to harm trade.

Uribe last week suspended Chavez's role as mediator in negotiations with Colombia's FARC rebels over hostages taken in the conflict. The U.S. ally accused Chavez of overstepping his bounds and disclosing details of private talks.

The two leaders have maintained a pragmatic relationship despite their sharp ideological differences, but the row over the hostage talks has fuelled tensions between the two countries with more than $6 billion in annual bilateral commerce.

"They issued a statement yesterday filled with lies, and that is serious, very serious," Chavez said during a televised broadcast. "President Uribe is lying, and he's lying in a shameless way."

Chavez appeared to be referring to Colombia's statement on Saturday saying Chavez had been pushed out of the talks for speaking directly with a Colombian general about hostages despite an agreement with Uribe not to do so.

He described Uribe decision as a "spit in the face," in marked contrast to his calm acceptance of the news last week.

Responding later, Uribe charged Chavez with siding with the FARC in his mediation and accused the self-styled socialist of seeking to promote an "expansionist" plan inside Colombia.

"The truth President Chavez, is that we need mediation against the terrorists not one that legitimizes terrorism," Uribe said. "The truth president Chavez is that if you are fomenting an expansionist project in the continent, it has no entrance in Colombia."

For months, Chavez had sought to persuade Marxist FARC rebels to release 47 key hostages, including a French-Colombian politician, Ingrid Betancourt, and three U.S. defence contractors held for years in secret jungle camps.

COMMERCIAL TIES

Chavez on Sunday warned his cabinet ministers they had to be "on alert" over commercial ties with Colombia, Venezuela's second-largest trading partner.

"Everyone should be on alert with respect to Colombia," Chavez said. "The companies that Colombians have here, the companies we have over there, commercial relations -- all of that will be damaged."

Chavez made a similar threat this month about Spanish businesses after a diplomatic spat caused by Spanish King Juan Carlos telling Chavez to "shut up" during a summit in Chile.

In 2005, the Venezuelan leader recalled his ambassador from Bogota and briefly suspended joint commercial projects with Colombia after bounty hunters snatched a Colombian guerrilla from Venezuela in the worst diplomatic flap between the countries in years.

The conservative pro-Washington Uribe and the leftist anti-U.S. Chavez have suffered occasional diplomatic impasses but have cooperated on energy projects and fostering commercial ties.

But Chavez has frequently criticized the U.S.-backed Plan Colombia counter-narcotics program, which he has described as Washington's effort to maintain a military presence in Latin America.

Uribe has received billions of dollars in U.S. aid to fight drug traffickers and the FARC. Violence and kidnapping from the four-decade-old conflict have ebbed as troops take back towns and highways once under the control of illegal armed groups.

"I'm sure he didn't want to continue in the (hostage negotiation) process, the gringos pressure him a lot," Chavez said.