Palin defiant after probe jolts McCain campaign.

By Myriam Chaplain-Riou

DAVENPORT, Iowa (AFP) - Vice presidential hopeful Sarah Palin denied wrongdoing Saturday after a probe found she had abused voters' trust as Alaska governor, in a new blow to John McCain's trailing White House campaign.

Republican McCain was embroiled in turmoil of his own meanwhile, after he was booed late Friday by supporters and appeared to undercut his own campaign strategy by calling time on personal attacks on Barack Obama.

Alaska Governor Palin rejected the findings of a bipartisan legislative probe which found she violated ethics rules by letting husband Todd pressure top officials for the firing of her ex-brother-in-law, a state trooper.

Asked by a reporter in Pennsylvania if the charges were true, Palin replied: "No, and if you read the report you will see that there was nothing unlawful or unethical about it. You have to read the report."

The report said that Palin had "the authority and power to require Mr Palin to cease contacting subordinates, but she failed to act."

But in a phrase seized upon by the McCain camp, the report also said she acted within her "constitutional and statutory authority" in the case.

The probe was the latest blow to Palin, who electrified the Republican Party when she was first picked, but has seen her impact, especially among undecided voters and women diminish amid questions about her qualifications.

The damaging report could make it tougher for the McCain camp to portray Palin as a crusading reformer set to flush out corruption in Washington.

McCain meanwhile took to the campaign trail in Iowa, for the first time after he had to step in at a town hall meeting in Minnesota Friday, when one woman said Obama was an "Arab" and a man said he was "scared" of the Democrat.

Critics say the seething anger seen at McCain rallies, with shouts of "treason" and "kill him" heard from some crowds, has been whipped up by campaign ads which have accused the Democrat of associating with terrorists.

"He's a decent family man (and) citizen that I just happen to have disagreements with on fundamental issues and that's what this campaign's all about," McCain said at the town-hall meeting in Lakeville, Minnesota.

McCain told the man who said he was "scared" to bring his new baby into an America ruled by Obama that the Democrat was a "decent person and a person that you do not have to be scared of as president of the United States."

McCain's comments drew boos from some of his supporters and appeared to directly undercut the thrust of his aggressive negative ad campaign which has question whether Obama has a character befitting a president.

The campaign has accused Obama of not telling the truth about what he insists is a passing acquaintance with William Ayers, a 1960s radical who is now a college professor.

Palin, who has been cast in the role of attack dog by the campaign, did not repeat her criticisms of Obama over Ayers during an appearance in Pennsylvania on Saturday.

Obama meanwhile acknowledged McCain's attempt to cool things down, but charged his rival with running a negative campaign to try to distract voters from the number one issue -- the tumbling US economy.

"Now, I want to acknowledge that Senator McCain tried to tone down the rhetoric yesterday in his town hall meeting and I appreciate his reminder that we can disagree while still being respectful of each other," Obama said.

"I have said it before and I'll say it again -- Senator McCain has served this country with honor and he deserves our thanks for that," Obama said, as McCain's name was greeted with boos at Obama's rallies in Philadelphia.

But McCain's spokesman Tucker Bounds immediately responded: "The tone of this election is not fueling voter outrage, it's that Americans are frustrated" at Obama's "plans to raise taxes during a down economy."

Just 24 days before the election, time appeared to be fast running out for McCain to change the trajectory of a campaign which has seemed to be slipping away ever since the onset of the worst financial crisis since the 1930s.

Obama led McCain 52 percent to 41 percent among registered voters nationwide, according to a new Newsweek survey, which a month ago had the race locked at 46 percent.

As many as 86 percent of voters said they were dissatisfied with the way things were going in the United States, and only 10 percent said they were satisfied -- a grim omen for Republicans.