Taylor, who was trailing Baucus badly in the polls, said the commercial amounted to character assassination.

Choking back tears with his wife, Janna, by his side, Taylor said: "I'm willing to suspend my campaign because my opponent's lies about me are hurting my wife, my family, my friends, my party and most of all, Montanans from all walks of life."

He said he hoped another Republican would step forward as a write-in candidate and keep Baucus from winning election to a fifth term Nov. 5.

Montana law bars the replacement of a candidate if he withdraws within 85 days of the election, and state GOP officials said there were no plans to try to get around the deadline, the way the Democrats did in New Jersey's Senate race last week.

Two Republican sources said an overture was made to Republican National Committee Chairman Marc Racicot, a former Montana governor, to gauge his interest in becoming a candidate. Racicot declined, the sources said on condition of anonymity.

In the wake of his decision, GOP officials in Washington sent mixed signals on whether they were still searching for a replacement candidate. GOP spokeswoman Mindy Tucker issued a statement that appeared to leave open the possibility.

"Last week the Democrats stated clearly their desire for all voters to have a choice on Election Day," Tucker said in reference to the switch in New Jersey. "We hope that choices remain available in this case."

Jim Jordan, executive director of the Democratic senatorial committee, countered that Republicans had said replacing candidates so late in the election cycle "was unethical and they went all the way to the Supreme Court to prove their point. Presumably they intend to live by their principles in Montana."

In New Jersey, Democrats won a court battle to replace scandal-tainted Sen. Robert Torricelli on the ballot with former Sen. Frank Lautenberg, even though Torricelli dropped out past the deadline under New Jersey law.

Montana state GOP Chairman Ken Miller said there were no plans to try to replace Taylor on the ballot. Racicot did not return calls.

Taylor's withdrawal came less than a week after Democrats began airing a TV ad accusing the 61-year-old state senator of a scam involving student loan money when he ran a Colorado beauty school in the 1990s.

The commercial includes videotape from the 1980s of Taylor wearing an open-front shirt and gold chains while massaging a man's face. The video was from Taylor's "Beauty Corner," a segment he used to host on a Colorado TV news program.

"There's no question about it, what they're trying to imply," Taylor said. "They're trying to say that every barber and every cosmetologist, every manicurist or anybody in the beauty and hair fashion industry is homosexual."

Brad Martin, executive director of the Montana Democratic Party, denied use of the old tape was intended to suggest Taylor is gay. Taylor, a father of two and a cattle rancher, has been married to Janna for 22 years.

Baucus held a 19-point edge over Taylor before the ad began running. His campaign denied having anything to do with the ad and said he would not comment on Taylor's withdrawal.

The ad, unveiled Oct. 4, cites U.S. Education Department documents that concluded Taylor's Institute for Hair Design obtained federal loans for students enrolled in a program ineligible for financial aid. The ad says the school failed to properly refund loan money when students left school.

The reports also say the institute gave loans to students no longer attending classes or failing to meet academic standards, and failed to verify the loan eligibility of some students.

Taylor has said the school made clerical errors in handling loans, but he denied any scheme to profit from the federal aid program.

He said the pictures of him, rather than the loan issue, prompted his decision to drop out. Taylor blamed Baucus for the ad, calling it an example of a "sea of sleaze" created by the senator.

Taylor's campaign manager, Alan Mikkelsen, said a poll taken earlier this week showed the ad had doubled Baucus' lead over Taylor to 33 points.

Taylor already has spent $1 million of his own money on the campaign, and said he would have had to pay $250,000 more to adequately respond to Baucus.

"I would have to blanket the airwaves with slime more thoroughly than he," he said. "If that's what it would take to win ... that is not a victory worth winning."

Karl Olson, executive director of PRIDE, a Helena gay rights organization, said he believes the ad was an attempt to suggest Taylor is gay. He said he was bothered more by Taylor's reaction.

"To me, what's more of a problem is that an adult, an intelligent person, is going to flee from that and not just stand up and say, `You know, OK, so I looked like a gay hairdresser. What's wrong with looking like a gay hairdresser? Let's get on with the campaign,'" he said.

EDITOR'S NOTE Associated Press writers David Espo and Ron Fournier contributed to this report.

Copyright 2002 The Associated Press. All rights reserved.

[Video Clip "Beauty Corner" Mike Taylor contends Democratic party's use was done to insinuate that he was a gay hairdresser. http://playlist.yahoo.com/makeplaylist.dll?SID=3430931 ] [Real Player Required-Click for Free Download]