Bowing to public pressure, top US toolmaker Stanley Works last night dropped its controversial plan to re-incorporate in Bermuda following widespread criticism of the company's strategy for avoiding millions of dollars in US taxes.

Reuters and the Associated Press reported that Stanley said it withdrew the proposal, announced in February, saying pending Congressional reforms would eliminate the need to move to the offshore tax haven.

The Stanley plan drew fire from lawmakers, shareholders, labour groups, and officials in Connecticut, where it has been headquartered for 159 years.

State Attorney General Richard Blumenthal has filed suit against Stanley to block the move, alleging irregularities in May's shareholder vote on the matter.

Stanley, headquartered since 1843 in New Britain -- just southwest of Connecticut's capital city, Hartford -- planned to join a growing number of US firms that have registered their corporate names in Bermuda as a means of lowering its taxes on non0-US earnings. At the time it proposed the move, the maker of a range of tools said the move would save $30 million a year in taxes.

Other US companies that have re-based to Bermuda include Stanley competitors Ingersoll-Rand Co. Ltd. and Cooper Industries Inc., as well as driller Nabors Industries Inc., and others.

"Our ability to compete is being undermined by the US tax code, which is archaic in today's global market, putting US companies that compete globally in an untenable position," Stanley chairman and chief executive John Trani said in the company's statement last night.

But, recent proposals in Congress would address those inequities, Stanley said.

Sponsored by the House Ways and Means Committee Chairman Bill Thomas, a Republican from California, the pending bill proposes to stop companies from running to offshore tax havens while bringing tax laws into compliance with world trade rules. The bill would imposed a three-year moratorium on companies such as Stanley from setting up shell headquarters overseas to avoid paying US taxes.

Separately, the US Senate voted on Wednesday to deny lucrative

defence contracts to US companies that incorporated offshore in the past year.

Trani said congressional leaders had asked the company to support legislation to "create a level playing field".

"We have honoured their request, and the ball is now in their court," he said. "Ignoring this problem will not make it go away, but can

only accelerate the trend of fewer US headquartered companies."

More than a year ago, Stanley started discussing how to compete

against foreign companies that have the advantage of significantly

lower income tax rates. It estimated the move to Bermuda would have saved the company about $30 million a year.

In its release yesterday, Stanley said the decision not to

re-incorporate would have no effect on previous earnings guidance.

The company said when it released earnings on July 17, that its earnings view included the costs, but excluded the possible benefits of its plan to move its corporate headquarters to Bermuda.

Sanley held a shareholder vote on the issue in May, and claimed it

had received the required level of support. But groups led by

employees and retirees alleged irregularities in the voting process.

Stanley agree to a re-vote.

In a letter to the Securities and Exchange Commission in June, Blumenthal accused Stanley Works of making "misleading statements" in a proxy sent out to shareholders for the first vote in May. Blumenthal asked the SEC to delay a second vote until an investigation was completed.