Former IMF chief Dominique Strauss-Kahn was released on his own recognizance after a hearing Friday in which his investigators admitted some issues had arisen with his accuser’s story. As Howard Schneider, Colum Lynch and Zachary Goldfarb reported:

Former International Monetary Fund managing director Dominique Strauss-Kahn was freed on his own recognizance after weeks under house arrest in Manhattan as doubts grew about the credibility of the woman who accused him of rape.

The sharp turn in the case came in a New York court hearing on Friday where lawyers from the office of New York City District Attorney Cyrus Vance Jr. agreed that the French politician’s $1 million bail be returned and his confinement to a New York townhouse be ended. The arrangement has cost him $250,000 per month.

Strauss-Kahn still faces sexual assault charges, and he will not be allowed to leave the United States. His passport remains in the possession of authorities. The next hearing is July 18.

But the future of the case remains unclear. Strauss-Kahn resigned from his $440,000 a year job as head of the IMF after he was charged in the case, and his political career in France was upended just before an expected run for the nation’s presidency.

Attorneys for Strauss-Kahn asked the court to reduce the conditions of his bail after prosecutors raised serious concerns about the hotel chambermaid who accused the former IMF chief of raping her at the Sofitel hotel in Manhattan in May, according to a person familiar with the case.

After the hearing, the woman’s lawyer, Kenneth Thompson, defended his client and accused Vance’s office of turning its back on a sexual assault victim. He acknowledged discrepancies that prosecutors found in the Guinean woman’s application for U.S. asylum and other “mistakes.”

In France, allies of Dominique Strauss-Kahn cheered the ruling, and said Strauss-Kahn could not yet be ruled out as a presidential candidate in France’s next presidential election. As Michael Birnbaum explained:

Allies of disgraced former International Monetary Fund chief Dominique Strauss-Kahn cheered his surprise release Friday from house arrest in New York, hoping that rape charges against him would eventually be reduced or dismissed and that his political career could be reborn.

Strauss-Kahn was a leading Socialist Party contender for the French presidency when he was hauled off a Paris-bound plane at a New York airport in May and accused of raping a Guinean-born housekeeper at a luxury Manhattan hotel.

He was forced to resign from his perch at the top of the International Monetary Fund.

News that prosecutors might have serious doubts about the credibility of Strauss-Kahn’s accuser hit Paris on Friday morning like a “thunderclap,” in the words of former Socialist prime minister Lionel Jospin, speaking on RTL Radio.

The revelations about the case against the man widely known here as DSK — including the possibility that the charges against him could be reduced to a misdemeanor, or perhaps dropped altogether — threatened to again upend political calculations that have been in flux since Strauss-Kahn’s arrest.

A spokesman for Strauss-Kahn’s party called the developments Friday an “immense relief.” Members of President Nicolas Sarkozy’s party, the Union for a Popular Movement, scratched their heads, wondering whether Strauss-Kahn could once again threaten the unpopular Sarkozy’s chances for reelection.

“I don’t rule out that [Strauss-Kahn] could be a presidential candidate,” said Socialist National Assembly member and Strauss-Kahn ally Jean-Marie Le Guen, speaking on France Info radio.

Reports first emerged Thursday night that prosecutors and investigators had uncovered inconsistencies the chambermaid’s story, giving ammunition to allies who claim Strauss-Kahn was the victim of a set-up. As Zachary Goldfarb and Howard Schneider reported:

Prosecutors, who had expressed confidence in their case and said they had physical evidence proving that Strauss-Kahn had sexual contact with the woman, now have serious doubts about what the chambermaid told them, according to the person familiar with the matter, who requested anonymity to speak freely about the confidential matter.

A separate law enforcement official who is familiar with the case but not authorized to speak about it publicly told the Associated Press that the issue was not necessarily about the rape accusation itself but about questions surrounding the alleged victim’s background that could damage her credibility on the witness stand. The official refused to elaborate.

Prosecutors are questioning the woman’s asylum application with U.S. immigration authorities as well as her possible connections to a convicted drug dealer, the Times said.

The chambermaid had a telephone discussion with a convicted drug dealer within a day of the alleged assault and discussed the possible benefits of filing charges against Strauss-Kahn, according to the Times.

Prosecutors have found that the woman received $100,000 in cash payments in her bank accounts in recent years from the drug dealer and others. They also found she maintained multiple bank accounts.

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