US software giant Microsoft Corp faces a European Commission fine over charges it abused the dominance of its Windows operating system and may be ordered to share vital software with competitors.

The European Union's executive body said it would give Microsoft one final chance to comment before taking action, adding it was confident its case could weather rigorous legal scrutiny.

"The Commission's preliminary conclusion is that Microsoft's abuses are still ongoing," it said in a statement.

The Commission gave no clear indication of how much the fine would be, although whatever the amount, it is unlikely to make much of a dent in Microsoft's $49 billion in cash holdings.

It also intends to order the firm to share crucial interface protocols for computer servers with competitors and change the way it distributes its Windows Media Player software, which lets personal computers play music and video.

A final decision, which may still be months away and would set a timetable for new mandatory business practices, can be appealed to European Union courts. But an appeal would not freeze the effect of the Commission's decision.

The Commission said Microsoft designs its low-end server software, which manages everything from websites to e-mail systems, to work better with Windows than with rival operating systems from Sun Microsystems Inc., Oracle Corp. and other competitors.

Sharing Windows' interface protocols could make it easier for software developers using rival systems, including the Linux operating system that is freely available and increasingly popular in servers, to create products that work with Windows.

An EU source said Microsoft now has 70 per cent of the market for server operating systems.

The Commission would also force Microsoft either to halt its bundling of Windows Media Player with the ubiquitous Windows operating systems, or to include rival software programmes among its offerings.

Critics say the bundling practice puts competing products from Real Networks and Apple Computer at a serious disadvantage.

On the US Nasdaq market, Microsoft shares were up 1.6 per cent at $26.08, outperforming the Nasdaq Composite index's 0.3 per cent dip.

Tiffany Steckler, a Microsoft spokeswoman in Paris, said the company had dealt with some of the Commission's concerns in remedies agreed to in its US antitrust case. Critics say those remedies have been ineffective.

She added the company was examining the Commission's preliminary findings but considered them unfortunate because they would lengthen the EU's antitrust investigation. Despite those concerns, analysts viewed the announcement as the first clear signal an end was in sight for the four-year probe.

"This is a precursor to a settlement. I think we'll see a settlement at the end of the year. And I think Microsoft will, in the end, make minor concessions," said David Smith, an analyst with technology consultancy Gartner.

He suspected Microsoft would not give in to requests to prise its Windows Media Player from its Windows operating system, nor would it bundle rival media players in its core operating system software.

But the Commission's tough-sounding rhetoric indicated it had no intention of backing down.

"At this stage, we have so much evidence and we are in possession of such a substantive file that we believe any decision we take will withstand scrutiny of the European court," Commission spokesman Tilman Lueder told a briefing.

Thomas Vinje, a lawyer and key Microsoft critic, lauded some aspects of the Commission's approach but said it faces a tough task wrangling with the software titan.

"The Commission will have to be extremely diligent in administering and enforcing it because Microsoft will go to great lengths to circumvent it and render it ineffective," said Vinje, of the Computer and Communications Industry Association, a Microsoft opponent .

He also doubted the effectiveness of having Microsoft offer more than one media player.

"The only remedy which is likely to be effective against tying is untying," he said.