By Gary Robertson

RICHMOND, Va., May 17 (Reuters) - The most nail-biting U.S. governor's race this year is centering on whether a Tea Party Republican can win Virginia, the southern state that has twice backed Democratic President Barack Obama.

So far, the answer is: maybe.

Republican state Attorney General Ken Cuccinelli, known for his anti-abortion and tax-cutting positions, is in a tight race with Terry McAuliffe, a former national Democratic Party chairman. The election will take place in November.

With Cuccinelli set to be nominated formally at a state party convention on Saturday, a Quinnipiac University poll this week showed him with 38 percent support, behind McAuliffe's 43 percent.

"The 17 percent of voters who say they are undecided will determine the Commonwealth's next governor," Peter Brown, assistant director of the Quinnipiac University Polling Institute, said in a statement. "At this point, neither man seems to have much of an edge."

More than $11 million has poured into a race seen as crucial to reviving national fortunes for Republicans, and especially its Tea Party right wing, after Obama's re-election last year and the loss of two seats in the Senate.

Robert Holsworth, a political analyst who has worked for governors from both parties, said Republicans saw Cuccinelli's candidacy as a national test case.

"Would Republicans be better off running someone with clear principles like Cuccinelli or someone in the mushy middle?" Holsworth said. "Some people will read these elections as an early signal about 2014" midterm congressional elections.

More than anything else, Cuccinelli, 44, has been known for sticking to the conservative principles that have made him a darling of the anti-tax, anti-government Tea Party.

Cuccinelli set off a storm in Virginia by pushing through rules mandating that abortion clinics meet the same standards as hospitals. Abortion rights supporters said it could lead some clinics to close.

Cuccinelli also opposed a bipartisan transportation package Republican Governor Bob McDonnell got through the legislature because it would bring in $880 million a year from new taxes.


"WE WERE BEAT"

At a Chesterfield County Republican Party gathering in late April, Cuccinelli urged the crowd to shake off the "depression" that had set in since Obama won the state in November for the second time.

"We were beat, and we have a lot of ground to make up," he said.

With jobs and the slow-growing economy the top issues for voters, McAuliffe, a 56-year-old millionaire who headed President Bill Clinton's re-election campaign in 1996, told supporters when he kicked off his campaign this month that he woke up every morning thinking about "training a good work force."

Virginia's unemployment rate was 5.3 percent in March, more than 2 percentage points below the national average. But the state is one of the biggest recipients of federal outlays, and officials fear it could be hit hard as the U.S. government cuts spending.

Besides indicating a tight race, polls point to an electorate that is at odds with Cuccinelli and Virginia Republicans' positions on social issues.

Although Cuccinelli opposes gay marriage, a Washington Post poll this week showed 56 percent of Virginians were in favor of it. Fifty-five percent also support keeping abortion legal, the poll said.


CRITICISM

McAuliffe has been criticized because of his connection with GreenTech, a struggling Mississippi-based electric car manufacturer that he helped launch. He later quit as chairman, saying he wanted to focus on his race for governor.

Critics have said the company failed to live up to its promise and undermines McAuliffe's claim to be a successful entrepreneur.

Cuccinelli has come under fire following news stories questioning his relationship with nutritional supplement company Star Scientific and Chief Executive Officer Jonnie Williams Sr. Cuccinelli has acknowledged that he took gifts from Williams, including a catered $1,500 Thanksgiving dinner.

McAuliffe is ahead in fundraising, generating $6.7 million to Cuccinelli's $4.4 million as of March 31. By comparison, almost $41 million was spent in the 2009 governor's race McDonnell won.

In a sign of the national interest in the contest, much of the money for this year's race is from outside Virginia. McAuliffe is his own top donor, giving almost $300,000.

Cuccinelli's backers include the Republican Governors Association, which has given $1 million; investor Foster Friess, who backed Republican Rick Santorum's presidential bid last year; and conservative political activist David Koch.

In New Jersey, the only other state with a gubernatorial race this year, incumbent Republican Chris Christie holds a double-digit lead over his Democratic opponent, state Senator Barbara Buono, in early polling. (Reporting by Ian Simpson; Editing by Arlene Getz and Lisa Von Ahn)

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