(Adds rebel comments on hostage deal paragraphs 10-11) By Brian Ellsworth CARACAS, Nov 27 (Reuters) - Venezuelan President Hugo Chavez recalled his ambassador from Colombia on Tuesday, escalating a dispute over Bogota's decision to fire the leftist as mediator in talks with Marxist rebels to free hostages. The recall heightens tensions after Chavez and President Alvaro Uribe exchanged barbs over the abrupt end last week to his efforts to free captives held for years by FARC rebels, including three Americans and French-Colombian politician Ingrid Betancourt. "To carry out an exhaustive evaluation of bilateral relations, (the government) has recalled its ambassador from Bogota," the foreign ministry said in a statement. Colombia said it would keep its envoy in Caracas, the first time in days one side has reacted to a move by the other without further escalating the dispute between Andean neighbors with $6 billion in annual trade. "We are going to keep monitoring this situation to see what happens," Colombia's Foreign Minister Fernando Araujo said. Chavez's clash with his ideological opposite is his second diplomatic dispute this month. He has frozen ties with Spain after its king told him in public to "shut up." Chavez also faces this Sunday his toughest vote battle since taking office in 1999 in a referendum on letting him run for re-election indefinitely with polls showing the self-styled socialist revolutionary may lose. On Sunday, the anti-U.S. leader said he had also frozen relations with Colombia, accused Uribe of lying in the dispute, and warned the spat could hurt cross-border business. Uribe, a close Washington ally, responded by accusing Chavez of favoring the Revolutionary Armed Forces of Colombia, or FARC, which is still waging Latin America's longest-running rebel insurgency despite security improvements. In a tough reaction to Uribe's announcement, FARC commander Ivan Marquez said no deal to exchange jailed rebels for key hostages was possible while he was in government. "For there to be peace and an exchange we need a new government, one that is truly democratic," the commander said in a statement dated Nov. 23, the day after Uribe's decision. BORDER SPATS The governments' spat is the worst since Chavez recalled his ambassador in 2005 after bounty-hunters snatched a Colombian rebel commander from a Caracas street and whisked him across the border to be arrested. At the time, Chavez charged Colombia with violating Venezuelan sovereignty and briefly suspended business accords. Bilateral trade fell 15 percent. Chavez presents his 21st century socialism as the antidote to U.S. free-market policies in Latin America while conservative Uribe has been a bastion of support for the White House even as Democrats resist approving a free trade deal. But for the most part, the two leaders had managed to keep a pragmatic relationship. They jointly inaugurated a gas pipeline this year that crosses their 1,367 mile (2,200-km) border. "The chemistry they had despite differences is going to be hard to get back," said Michael Shifter at the Inter-American Dialogue think tank in Washington. "But proximity and trade will drive the relations back on track." Venezuela is Colombia's No. 2 trade partner after the United States, and Colombia is enjoying strong exports of many food goods to Caracas, where currency and price controls have caused shortages in items such as sugar and milk. Colombia invited Chavez in August to broker an agreement. But he ended the efforts, saying Chavez broke with protocol by speaking to the head of Colombia's army without permission. (Reporting by Brian Ellsworth in Caracas; writing by Patrick Markey in Bogota, editing by Saul Hudson and Cynthia Osterman)
