Microsoft's legal problems deepened yesterday when the European Commission extended its antitrust investigation into the software company.

The news added to woes for US markets which fell through the important 10,000 level on an unusually busy day of trade before the Labor Day holiday.

The Commission said the company may have abused competition law when it tied its new Media Player software with its dominant Windows operating system. The news prompted a 5 per cent drop in Microsoft shares in early trading yesterday.

Until now the Commission's inquiry, launched last year, has focused on the low-end server market. The inquiry into Media Player signals added European concerns that could affect Microsoft's soon-to-be-released Windows XP, which has tied several software applications into its operating system.

The Commission said it would not seek a delay in the launch of XP, scheduled for the end of October, and Microsoft said it welcomed that decision. But asked whether the new probe was a warning to Microsoft over its inclusion of Media Player, a European Union official said: "You could take it like that."

Antitrust experts said the expanded European investigation could emerge as more of a threat to Microsoft than similar investigations in the United States, since US antitrust law is very narrow when it comes to issues of tying.