Microsoft, the world's largest software company, yesterday embarked on a last-minute bid to avoid a landmark antitrust battle with the US government.

It agreed to delay today's scheduled start of deliveries to personal computer makers of the latest version of its Windows software, in return for an extension of the government's deadline for launching legal action.

Microsoft was reported to have offered "major concessions", but details were unclear.

The US Justice Department said discussions would continue "over the next several days", but a government source said it would be "a brief period".

The negotiations - described as "settlement talks" - are expected to continue over the weekend as both sides seek a compromise.

More than 20 state attorneys general, who are planning their own legal case revolving around allegations that Microsoft has abused its monopoly power, are also participating.

One party involved in the talks said: "There was no indefinite commitment to negotiate. There is only an offer in good faith to talk over the next few days."

The Justice Department was expected to brand Microsoft an illegal monopoly by launching a lawsuit against the company yesterday.

Its timing was intended to coincide with the release of Windows 98 because the government may have wanted to demand changes in the content of that software.

The antitrust lawsuit would represent the biggest action by the US government since it broke up AT&T, the telecommunications company, in 1984.

Officials at Microsoft's Redmond, Washington, headquarters refused to discuss the nature of the talks, but said the company's lawyers had been in "ongoing discussions" with the Justice Department and state attorneys general for the past week.

By postponing shipments of Windows 98 "golden master" discs to hundreds of PC manufacturers worldwide, Microsoft has provided some extra time for its lawyers to try to broker a deal with antitrust officials.

However, the company remains adamant that it will not waiver from the principle that it has the right to control the features included in its products.

Microsoft confirmed, in a statement issued yesterday, that it had completed all work to develop Windows 98.

While it agreed to delay shipment to the industry, it refused to change the date of its high-profile launch to retail customers on June 25th.

Microsoft's shares rose $2 5/8 on news of the settlement talks, to trade at $895/8 at lunchtime yesterday.

Developments in the tussle between the US government and the company took a dramatic turn early yesterday when Microsoft went to the Justice Department to offer what CNBC television said were "serious concessions" to head off the long-awaited antitrust case.

The network said Microsoft officials met with Mr Joel Klein, head of the antitrust division in the office of the US attorney general, and top legal authorities from New York, Connecticut and Iowa.

The Justice Department and attorneys general from more than a dozen states had been expected to hold a midday press conference to announce they were taking Microsoft to court on grounds it had engaged in anti-competitive practices.

Microsoft chairman, Mr Bill Gates has repeatedly warned that sweeping action against his company would stifle innovation in the computer industry.

"Microsoft's key goal is to be able to have the freedom to innovate . . . where we decide what goes into the product, where we can support the Internet in the product and we're simply sticking up for that," he argued last month.