Former IMF chief Dominique Strauss-Kahn was released without bail on Friday after a dramatic court hearing where the sexual assault case against him appeared to shift in his favor.

Strauss-Kahn, who smiled as he walked out of court, still faces felony charges of attempted rape and sexual assault over the alleged attack on a hotel maid in New York. His lawyers said they will seek to have the charges dismissed but the judge said prosecutors were continuing to investigate.

The turnabout could upend French politics. Strauss-Kahn, 62, was a strong candidate for the 2012 French presidential election until his May 14 arrest.

At a hearing to seek changes to his bail conditions, prosecutors said the credibility of the woman at the center of the case had been thrown into question.

As a result, the court agreed to let Strauss-Kahn be freed and his bail and bond returned. He agreed to return to court as needed, including for a July 18 hearing.

I understand that the circumstances of this case have changed substantially and I agree the risk that he would not be here has receded quite a bit. I release Mr. Strauss-Kahn at his own recognizance, Justice Michael Obus told the court.

Strauss-Kahn's arrest forced his resignation from the International Monetary Fund and appeared to end his presidential hopes, weeks before he had planned to declare his candidacy.

His supporters in the French Socialist party voiced delight at the apparent reversal and some said they hoped he might re-enter the 2012 presidential race.

'EXTENSIVE INVESTIGATION'

The case has hinged on the accuser, a 32-year-old Guinean immigrant who cleaned the $3,000-a-night suite at the Sofitel hotel in Manhattan where Strauss-Kahn was staying.

Prosecutors said at the hearing their change of view on the maid's credibility followed an extensive investigation but they gave no details.

The New York Times quoted two well-placed law enforcement officials as saying prosecutors found issues with the accuser's asylum application and possible links to criminal activities, including drug dealing and money laundering.

They also discovered the woman made a phone call to an incarcerated man within a day of her encounter with Strauss-Kahn in which she discussed the possible benefits of pursuing the charges against him, the paper said.

The conversation was recorded. The man was among a number of people who had made multiple cash deposits, totaling around $100,000, into the woman's bank account over the last two years, The New York Times said.

The woman's brother told Reuters in Guinea that she was the victim of a smear campaign.

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