Michael Fay's controversial plan for a head-to-head America's Cup showdown against Dennis Conner next year suffered an apparent setback in New York State Supreme Court yesterday, but Fay said he'll press on.

The flamboyant New Zealand banker has challenged Cupholder Conner to a two-boat, best-of-three series off San Diego in June in boats twice the size of conventional 12-meters. Citing antiquated language in the 100-year-old Cup Deed of Gift, he said the defender had no choice but to meet his challenge.

Last week, Fay won a temporary restraining order from the court, barring Conner's Sail America Foundation from advancing its plan for a 1991 regatta in 12-meters until Fay's challenge was dealt with.

But yesterday, after a hearing before Justice C. Beauchamp Ciparik, Fay's attorneys withdrew the request for the restraining order, leaving Sail America free to proceed.

Ciparik ordered both sides to provide further data by Sept. 18, and left the impression she would make a final ruling within several weeks.

"It's just where we wanted to be," Fay said. "The worry was that we would be tied up two to four years waiting for a decision."

But Sail America's executive vice president, Tom Ehman said: "I think he suffered a very serious setback. It's clear we are in a position now to proceed in a direction that's best for the Cup.

"If there were much of a question that she {Ciparik} would rule in the end in Fay's favor, she wouldn't have lifted the restraining order. We are very pleased."

Ehman said Sail America may announce as early as Friday its plan for a summer-long 12-meter Cup regatta off San Diego with up to 18 foreign challengers, and would welcome Fay at that competition. But Fay said Conner's people should hold off, that anything they announce will be "at their peril" pending the justice's final ruling.