Democrat Barack Obama, responding to his portrayal by John McCain’s campaign as a crony of "terrorists," fought fire with fire Monday by highlighting the Republican’s embroilment in a devastating 1980s financial scandal.

A month from election day on November 4, the rivals traded furious barbs as Arizona Senator McCain battled to arrest his Illinois opponent’s poll surge at a time of deep anxiety about the state of the US economy.

Obama rolled out a new advertisement and email onslaught recalling McCain’s complicity in the scandal over jailed tycoon Charles Keating, the collapse of whose savings and loan firm wiped out the savings of many elderly retirees.

McCain was part of a group of lawmakers that became known as the "Keating Five" that received gifts and favors from the businessman and intervened with regulators to insist his company was in good health.

The Republican escaped with a formal censure by the Senate in 1991 but spoke of the searing embarrassment caused by the scandal, which cost the US government 124 billion dollars to bail out the entire savings and loan industry, and went on to become a crusader for ethics reform.

"Sound familiar?" Obama campaign manager David Plouffe said in an email to supporters, after Congress last week passed a 700-billion-dollar bailout for Wall Street.

"The McCain campaign has tried to avoid talking about the scandal, but with so many parallels to the current crisis, McCain’s Keating history is relevant and voters deserve to know the facts — and see for themselves the pattern of poor judgment by John McCain," he said.

The war of words sparked by McCain’s running mate Sarah Palin raised the stakes still higher as the presidential contenders prepared to face off at the second of three debates on Tuesday.

Alaska Governor Palin Saturday accused Obama of "palling around with terrorists," a reference to his ties in Chicago to former militant William Ayers, whose "Weathermen" group bombed government buildings in the 1960s and 1970s.

Palin told supporters the Democrat was thus "not a man who sees America as you and I do, as the greatest force for good in the world."

That remark appeared to underline that the Hawaii-born Obama, the first African-American with a serious shot at the presidency, does not resemble the average white voter.

But while the McCain campaign insists it will not play the race card against Obama, it does intend to portray him as a wild-eyed liberal who is out of step with heartland values and unfit to lead.

McCain spokesman Tucker Bounds alleged that university professor Ayers was part of a network of Chicago patrons including convicted fraudster Antoin "Tony" Rezko, a property tycoon who used to be a top fundraiser for Obama.

"The last four weeks of this election will be about whether the American people are willing to turn our economy and national security over to Barack Obama, a man with little record, questionable judgment, and ties to radical figures like unrepentant domestic terrorist William Ayers," he said.

Obama hit back at the terrorist jab with another television spot that castigated the 72-year-old McCain’s "erratic" behavior as Congress warred last week over the economic rescue package.

The ad noted that top McCain advisor Greg Strimple had said the Republican’s campaign was "looking forward to turning a page on this financial crisis" and instead attack Obama’s "aggressively liberal record."

The Illinois senator, 47, said he would not fall prey to the kind of "Swift Boat" character assassination that helped to sink 2004 nominee John Kerry’s campaign to unseat President George W. Bush.

"They’d rather tear our campaign down than lift this country up. That’s what you do when you’re out of touch, out of ideas, and running out of time," Obama told a giant crowd of 28,000 people Sunday in Asheville, North Carolina.

Instead, Obama said he would hammer away at bread-and-butter issues including America’s health care crisis, with the US economy staring at recession after shedding 760,000 jobs so far this year.

With crisis sweeping through Wall Street and Main Street, polls now favor Obama both nationally and in battleground states such as Florida, Ohio and Pennsylvania.

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