Judd Gregg was Mr Obama's second nominee for commerce secretary
Republican US Senator Judd Gregg is withdrawing as President Barack Obama's nominee for commerce secretary.
Mr Gregg made the decision because of policy differences with the Obama administration, he said in a statement.
His nomination was announced last week and he was expected to become the second Republican in the Obama cabinet.
The White House said Mr Gregg had earlier pledged to "embrace" the president's agenda, and expressed regret at his "change of heart".
The BBC's Jonathan Beale reports from Washington that this is another blow for President Obama's efforts to shape his cabinet and to reach out to Republicans.
Mr Gregg's decision will also raise more questions about the vetting process used to pick his new cabinet, he adds.
Mr Obama has already lost four nominees for senior posts.
The president had originally picked New Mexico Governor Bill Richardson for the commerce post, but he withdrew over an investigation into a state contract given to his campaign donors.
Tom Daschle, who was to become the new secretary of health, and Nancy Killefer, Mr Obama's choice to oversee budget and spending reform, both pulled out last week over questions about their payment of taxes.
Late on Thursday, the Senate confirmed Leon Panetta as head of the Central Intelligence Agency.
Mr Panetta is a former chief of staff in Bill Clinton's White House.
Mr Gregg said in a statement that he had been honoured by his selection and that he admired President Obama's "willingness to reach across the aisle".
Judd Gregg: "I've been my own person for 30 years"
But he said he had found there were "irresolvable conflicts" on issues including Mr Obama's economic stimulus package and the country's census.
"Prior to accepting this post, we had discussed these and other potential differences, but unfortunately we did not adequately focus on these concerns," the statement said.
"We are functioning from a different set of views on many critical items of policy."
Shortly after Mr Gregg announced his decision to withdraw, the White House issued a statement saying the Republican senator had offered his name for the commerce secretary post.
"He was very clear throughout the interviewing process that despite past disagreements about policies, he would support, embrace, and move forward with the president's agenda," the statement said.
It said it then became clear that Mr Gregg "was not going to be supporting some of President Obama's key economic priorities".
"We regret that he has had a change of heart."
'Time to act'
The $789bn (£547bn) US stimulus package has been widely criticised by Republicans, who say it will lead to wasteful government spending.
Explaining his decision to reporters on Thursday, Mr Gregg said he had always been a "fairly strong" fiscal conservative, and that "it just became clear to me that it would be very difficult day-in and day-out to serve in this cabinet".
But members of both houses of Congress said they had reached a deal on the package this week after the two houses had passed differing versions of the bill.
President Obama on Judd Gregg's decision to withdraw
Mr Obama is expected to sign the final version of the bill as soon as Congress approves it.
On Thursday the president made his latest pitch for the bill as he toured a Caterpillar plant in East Peoria, Illinois.
He said Caterpillar, which has announced more than 20,000 layoffs, would be able to rehire some employees after the stimulus plan is passed, the Associated Press reported.
"It is time for Congress to act, and I hope they act in a bipartisan fashion," he said.
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