Markets buoyed as Microsoft deal nears

US Justice Department and Microsoft lawyers are pressing to finalise a deal to end their four-year antitrust battle, while state lawyers asked a judge for more time to consider the settlement.

The proposed deal would make it easier for consumers to remove certain features of Windows and install rival programs from other software makers, according to people who were briefed on the negotiations.

The markets reacted positively to word of a possible deal that experts hope will invigorate the sagging technology sector. Microsoft stock surged $3.69 (£2.52) to close at $61.84 (£42.27) per share.

The settlement would impose some restrictions on Microsoft during the next five years and could be extended two more years - until 2008 - if the company violated terms of the deal, the sources said, speaking only on condition of anonymity.

A three-person panel would monitor Microsoft's compliance, they added. The current antitrust case is rooted in allegations that Microsoft violated a related 1995 agreement with the Justice Department.

The state attorneys general who also sued Microsoft are trying to reach a consensus, and Justice Department antitrust chief Charles James made personal calls to enlist their support.

If the states don't sign on to the deal, the Justice Department and the company discussed proceeding with the settlement and allowing a judge to decide whether to accept the deal. The exact language is being finalised.

"It's just dotting the i's and crossing the t's," a lawyer involved in the case said, speaking only on condition of anonymity.

The parties are due in court on Friday to report their progress to US District Judge Colleen Kollar-Kotelly, who implored the parties earlier this autumn to reach a settlement and avoid a trial to impose penalties against Microsoft.

A court has already ruled Microsoft operated as an illegal monopoly and improperly thwarted competitors. But the original penalty imposed in the case that would have required Microsoft to be split into two companies was overturned by a federal appeals court this summer.