By Deborah Charles

CHICAGO (Reuters) - President-elect Barack Obama stumbled in his quest for a smooth transition on Sunday when New Mexico Gov. Bill Richardson withdrew as his nominee for commerce secretary in the face of a legal inquiry.

Richardson, a former Democratic presidential candidate and one of the country's most prominent Hispanic politicians, became the first casualty among Obama's Cabinet picks 16 days before the new administration takes office.

Obama, who was headed to Washington on Sunday to begin the final work ahead of his January 20 inauguration, said in a statement that he accepted Richardson's withdrawal with "deep regret."

Richardson denied any wrongdoing in connection with the probe of a California-based financial company that had done business with the New Mexico state government.

But he said an investigation lasting possibly weeks or even months "would have forced an untenable delay in the confirmation process."

Richardson had been expected to win easy confirmation by the Democrat-controlled Senate, which will begin vetting Obama's cabinet picks this week.

But an extensive public discussion of the New Mexico case, which news reports have said involves a probe of payments by a California company to political action committees run by Richardson, could embarrass an Obama camp that has already had to distance itself from a "pay-to-play" scandal involving the Democratic governor of Illinois.

Richardson served as U.S. ambassador to the United Nations and energy secretary in the Clinton administration and is a former member of the U.S. House of Representatives.