J. Fife Symington, the Republican candidate in this month's special gubernatorial election in Arizona who came to town yesterday for a fund-raiser with President Bush, found himself the target of allegations that he participated illegally in a real estate partnership with a now-failed Phoenix savings and loan.

At a hearing called by Sen. Howard Metzenbaum (D-Ohio), two former bank regulators testified yesterday that Southwest Savings and Loan violated banking regulations in 1983 when it formed a partnership with Symington, one of its directors, to develop a mixed-used project in Phoenix. Southwest subsequently failed in 1989, at a cost to taxpayers that is expected to exceed $250 million. The investment with Symington resulted in a loss to the thrift estimated at $21 million.

The morning testimony by the regulators before a Senate Judiciary subcommittee touched off outrage among Republicans and set off a scramble to find Symington and bring him to the committee before day's end to tell his side of the story. Just half an hour before he was to attend an early evening fund-raiser with Bush at the Madison Hotel, an angry Symington was before the panel denying any wrongdoing. He labeled the charges "absurd" and said Metzenbaum was embarked on a "political smear" campaign to try to influence the Feb. 26 election.

Senate Minority Leader Robert Dole (R-Kan.) took to the Senate floor yesterday afternoon to assail Metzenbaum for holding the hearing, calling it "an unprecedented abuse of Senate power ... I smell politics and it stinks." White House officials also dismissed the allegations as a Democratic campaign ploy.

Metzenbaum told Symington it was not his intention to affect the election, that he would "truly regret that happening." He said the main focus of the hearing was the government's failure to aggressively go after wealthy former savings and loan directors.

Two former government employees, an investigator and a lawyer, also told the committee that federal officials stymied their investigation into the role of Southwest officers and directors in the failure of the thrift. The officers and directors were fully protected against claims by the savings and loan's owner, billionaire shipping magnate Daniel K. Ludwig.

A former Federal Deposit Insurance Corp. lawyer, Mark Hollander, testified that a superior told him to drop the probe because Ludwig was "extremely politically influential." Hollander said he was fired last year for pressing the investigation.

Investigators working for Metzenbaum's antitrust subcommittee discovered Federal Home Loan Bank Board reports that stated that Symington and Southwest formed their partnership venture in September 1983, while Symington was a member of the board of directors -- a violation of thrift conflict-of-interest rules. Southwest invested $30 million to purchase the land for the project, the 20-acre mixed-use Camelback Esplanade in Phoenix.

Bank regulators also reported that the land was purchased without an appraisal, in violation of banking regulations.

Symington insisted that "there was an appraisal." He said that it was a "preliminary opinion" from an appraiser but that such documents are routinely accepted by lending institutions. He also said that "to the best of my knowledge, {bank board officials} were kept apprised of the acquisition" and therefore of his involvement as both partner and director until his resignation as director in January 1984.

Symington became a 19 percent owner of the project, although he had invested no capital, according to the report of committee investigators. He became the project's development manager and earned more than $2 million in fees. Since then, however, undeveloped land at the Camelback project has fallen in value, and losses to Southwest, which now is under the control of the Resolution Trust Corp., the federal agency that is disposing of failed savings and loans, are estimated at $21.6 million.

Bank board regulators repeatedly found that Southwest approved real estate loans without securing appraisals and that they sometimes sought second appraisals when the first ones came in too low.

Symington said he acted "appropriately." He called for a Justice Department investigation of Metzenbaum's handling of the Southwest issue, saying, "The intent was to create sensational news media coverage that would damage my candidacy for governor."

Arizona has already had more than its share of S&L scandals. Two of its senators, John McCain and Dennis DeConcini, are awaiting an ethics committee decision on their dealings with Lincoln Savings and Loan owner Charles Keating. Yesterday's events fueled the partisan sniping, with Republicans McCain, Symington, Dole and others charging that the allegations were being stirred by DeConcini, a Democrat and an ally of Symington's opponent.

FDIC officials said political influence was not a factor in the way they have handled Southwest.

David Scholl, Hollander's superior, who allegedly made the remark about Ludwig's political influence, said in an interview later that it was "an absolute fabrication." Hollander, he said, "is full of a lot of innuendos and misstatements." He said he was prohibited from discussing Hollander's firing.

Ludwig, a reclusive businessman whose worth was said by Fortune magazine to be $1.4 billion in 1990, controlled several other savings and loans, including American Savings and Loan in Utah. Symington said he was made a director at that savings and loan when he stepped down as a director at Southwest, after going into a partnership on the Camelback project.

Metzenbaum charged that Ludwig "used his S&L holdings as his personal venture capital checking account, with losses insured by the U.S. taxpayers."

Ludwig could not be reached for comment on the charges.

Officials of the FDIC and the RTC testified that an investigation was begun last July to determine whether the government should sue the former Southwest officers and directors. They said a decision is expected next month.

But Hollander and another former FDIC official, investigator Kenneth Webb, testified that the government would have had a much better chance in making a case against the directors if an investigation had been launched in early 1989, when the evidence trail was fresh. Instead, they said, efforts to investigate were deliberately quashed.

Webb was sent to Southwest in March 1989, after it was taken over by the government, to see if a case could be made against officers and directors, but he testified that when he got there, the government-appointed managing agent, Tony Scalzi, refused to let him interview officers and employees. Webb said he wrote memos and held several discussions with his supervisor about moving on a Southwest investigation, but was told "to forget it."

Scalzi, now a top-ranking RTC official who oversees the sales of savings and loans and their assets, testified that "there was no need to do immediate interviews, because these people weren't going anywhere." Pressed on why he did that by Sen. Arlen Specter (R-Pa.), Scalzi said, "I just felt that it might be better if he didn't conduct interviews... . I just felt that."

John Beaty, an FDIC supervisory attorney present at the hearing, said in an interview that "there was no pressure from Ludwig" and that the decision not to proceed immediately with the Southwest investigation had to do with the setting of priorities.

Staff writers Ann Devroy and John Yang contributed to this story.