WASHINGTON - REPUBLICAN John McCain readied for a high-stakes debate on Tuesday night with Barack Obama that offers one of his last best chances to halt the Democrat's recent surge in the increasingly vitriolic race.

The debate's town hall format - which will include questions on both domestic and foreign policy raised by audience members at Belmont University in Nashville, Tennessee, and voters participating through the Internet - is Mr McCain's favorite style of campaigning.

The second of three presidential debates comes just four weeks before the Nov 4 election.

Despite voters rising anxiety about the US financial meltdown, the candidates are also likely to go after each other on character issues, which Mr McCain and his running mate Alaska Governor Sarah Palin have forcefully re-injected into the campaign since the weekend.

As Mr McCain's poll standings fell along with the economy, his campaign began the new character criticisms and used Mrs Palin to spearhead the push. Mr Obama's campaign didn't wait long to respond by resurrecting McCain's links to a financial scandal two decades ago.

Mr Obama and Mr McCain faced cameras on Monday with harsh words for each other. Mr Obama, taking a break from debate preparations in Asheville, North Carolina, accused Mr McCain's campaign of 'smear tactics' to distract voters.

Mr Obama told reporters Mr McCain was not paying enough attention to the economic crisis gripping the country. The first-term Illinois senator said he could not 'imagine anything more important to talk about' than Americans' losing their jobs, health care and homes.

In Albuquerque, New Mexico, Mr McCain delivered an unusually scathing broadside. He accused Mr Obama of lying about Mr McCain's efforts to regulate the home loan industry. And he suggested Mr Obama is a mysterious figure who cannot be trusted.

'Who is the real Barack Obama?' Mr McCain said to a cheering crowd. 'Ask such questions and all you get in response is another barrage of angry insults.'

Brookings Institution political scientist Thomas E. Mann said he had felt for months that Mr McCain 'would eventually have to try to undermine Mr Obama as an acceptable choice for president and commander in chief'.

Key issues, he said, including 'an economy in turmoil, an unpopular war and a politically discredited president are working powerfully against McCain and the Republican Party in general'.

Mr Obama, meanwhile, has learned the lessons of Mr Michael Dukakis and John Kerry. Those Democrats lost presidential elections after hesitating to counter hard-hitting and factually dubious attacks on their character and judgment.

'We don't throw the first punch, but we'll throw the last,' Mr Obama said on Monday on Tom Joyner's syndicated radio show.

The vitriol increased dramatically over the weekend when Mrs Palin said Mr Obama sees America as so imperfect 'that he's palling around with terrorists who would target their own country', a reference to 1960s-era radical Bill Ayers.

Mr Ayers helped found the violent Weather Underground group, whose members were blamed for several bombings when Mr Obama was 8 years old.

Mr Obama has denounced Mr Ayers' radical views and activities.

Mr Obama and Ayers live near each other in Chicago, and once worked on the same charity board. Mr Ayers hosted a small, meet-the-candidate event for Mr Obama in 1995, at the start of his political career, but multiple news accounts have said they are not close.

The Obama campaign called Mrs Palin's remarks outrageous and grossly exaggerated.

The Obama campaign responded by e-mailing a 13-minute Web 'documentary' about Mr McCain's involvement with convicted thrift owner Charles Keating, calling the episode 'a window into McCain's economic past, present and future'.

Just months into his Senate career, in the late 1980s, Mr McCain made what he has called 'the worst mistake of my life'.

He participated in two meetings with banking regulators on behalf of Mr Keating, a friend, campaign contributor and savings and loan financier who was later convicted of securities fraud.

The Senate ethics committee investigated five senators' relationships with Mr Keating. It cited Mr McCain for a lesser role than the others, but faulted his 'poor judgment'.

With early voting already under way in some states, Mr McCain desperately needs to stem Mr Obama's momentum, but his attacks on the Democrat's character risk alienating the dwindling bloc of undecided voters.

As the mudslinging intensified, the most recent Gallup Poll daily tracking survey showed Mr Obama up by 8 percentage points, 50-42. It was the tenth day in a row that Mr Obama has held a statistically significant lead in the poll 'and the longest for either candidate at any point in the campaign', the Gallup organisation said.

Mrs Palin was likely to press her attacks on Mr Obama at campaign stops on Tuesday in Florida and North Carolina, two Republican-leaning states where Mr McCain is trying to fend off a stiff challenge from Mr Obama. -- AP