TRENTON, N.J. (AP) _ Acting Gov. Donald T. DiFrancesco, whose business dealings have recently come under scrutiny, will drop out of the race to become governor, The Associated Press learned Wednesday.

A source close to the acting governor said DiFrancesco planned to announce his decision Wednesday afternoon.

DiFrancesco formally kicked off his candidacy at a Middletown rally Sunday after spending the past 10 months securing endorsements from state and county GOP leaders.

But since taking office as acting governor Jan. 31 in place of Christie Whitman, DiFrancesco has been the subject of numerous published reports concerning his past business dealings.

Republican officials have long said that former U.S. Rep. Bob Franks would be at the top of the list to replace DiFrancesco as the Republican candidate in a primary contest against Jersey City Mayor Bret Schundler, who is also seeking the Republican nomination.

Franks was not immediately available for comment. Aides said he was preparing to make a statement Wednesday afternoon.

Almost since taking office, DiFrancesco, a 25-year veteran of the Legislature, faced embarrassment as news broke he had defaults on real estate loans for a building he owns in Chatham. Friends who privately loaned him money to avoid bank foreclosure included an engineer who had important state contracts.

Last week, The New York Times reported DiFrancesco had been under fire by town officials in Scotch Plains because of alleged conflicts of interest involving land his brother owned. DiFrancesco was employed as the town's solicitor.

The reports have prompted growing concern among GOP veterans at the state and local level about whether DiFrancesco would be able to take on Democratic candidate Jim McGreevey who came close to upsetting Whitman in her 1997 re-election campaign.