* EPA to drop major initiative to clean up smog
* Obama Administration move cheered by GOP, business
* Environmental groups to protest loss of key initiative (Adds reaction, background)
By Christopher Doering
WASHINGTON, Sept 2 (Reuters) - U.S. President Barack Obama unexpectedly asked the Environmental Protection Agency on Friday to withdraw a plan to limit smog pollution, handing a big win to business and Republicans who have argued the initiative was a job killer in uncertain times.
Obama said the move to kill one the EPA's major initiatives to clean up the environment was part of a broader government effort to reduce regulatory burdens and uncertainty.
Reaction was swift from business groups and Republicans that the White House was making the right decision as the country's economy continued to struggle.
"Job creators scored a major victory today in the fight against Washington's red tape," said Republican Senator John Barrasso.
Obama's announcement follows the grim report on Friday that U.S. employment growth ground to a halt in August, with the unemployment rate stuck at 9.1 percent.
The EPA, under pressure from business and Republican lawmakers, had delayed several times issuing the new rule that would limit smog pollution in the United States.
EPA Administrator Lisa Jackson, supported by a broad range of environmental groups, has said the ozone rules would save as much as $100 billion in health costs, and help prevent as many as 12,000 premature deaths from heart and lung complications.
Environmental groups lambasted the move as a big win for corporate America.
"The Obama administration is caving to big polluters at the expense of protecting the air we breathe. This is a huge win for corporate polluters and huge loss for public health," said Gene Karpinski, president of the League of Conservation Voters.
The initial standards, proposed near the start of last year, would limit ground-level ozone, or smog, to between 60 and 70 parts per billion measured over eight hours.
The proposal was stronger than 2008 standards set by the Bush administration. Environmentalists blasted those for being less aggressive than government scientists had recommended.
Under the rule, factories and oil, natural gas and power generators would be forced to cut emissions of nitrogen oxides and other chemicals called volatile organic compounds. Smog forms when those chemicals react with sunlight.
Dow Chemical (DOW.N) has said the rule could cost as much as $90 billion. Several companies including Dow have urged the administration to delay the rule until 2013. (Editing by Russell Blinch, Dale Hudson and Jim Marshall)