Democrat Barack Obama counterattacked on Sunday against a new Republican tactic by saying rival John McCain was more interested in a smear campaign than fixing the US economy.

The Obama campaign unveiled an ad hitting McCain as one of the "Keating Five" senators who met federal regulators on behalf of a California savings and loan institution that collapsed in 1989. The ad faults McCain as unwilling to regulate the financial industry.

With McCain losing ground in opinion polls, a campaign strategist was quoted as saying the Republican presidential candidate needed to "turn the page" on the economic issue and make the election about Obama's experience and character.

That effort started on Saturday when Republican vice presidential candidate Sarah Palin accused Obama of "palling around with terrorists" in reference to his acquaintance with Bill Ayers, a former member of the Vietnam War-era militant Weather Underground.

"Senator McCain and his operatives are gambling that he can distract you with smears rather than talk to you about substance," Obama responded at a rally in Asheville, North Carolina, a swing state where he was preparing for his second debate with McCain on Tuesday.

"They'd rather try to tear our campaign down than lift this country up," the Democratic presidential candidate said.

"It's what you do when you're out of touch, out of ideas and running out of time," Obama told a crowd of 20,000 attending the rally one month from the Nov. 4 election.

Obama's improvement in the polls has been fueled by the public's perception that he can best handle the ailing economy. The Illinois senator kept the focus on the economy and used the "turn the page" quote as a way of keeping the issue alive.

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