Microsoft could face an antitrust suit next week, barring a last-minute settlement with the Department of Justice. A two-hour meeting this week between Microsoft chairman Mr Bill Gates and Mr Joel Klein, head of the anti-trust department, failed to bridge the gap.

There is no question of breaking up Microsoft, which controls 90 per cent of the market for personal computer operating systems. Nor is the Justice Department likely to try to block the introduction of Windows 98 next month.

It is likely to seek a preliminary injunction or other court order forcing Microsoft to offer a version of Windows 98 without an Internet browser. The government will also seek to stop business practices considered anti-competitive.

Microsoft has argued that it should have the right to innovate and that any government action threatens to damage the entire PC industry and the US economy.

This week, Mr Gates staged an elaborate event in New York, where Windows 98 was put through its paces and executives from manufacturers such as Compaq echoed Mr Gates's warning of doom. Shares of Microsoft have dropped about 16 per cent from its April 22 record of $98 7/8 .

But a showdown seems inevitable. The lawsuit, expected to be filed in the US district court in Washington, will allege broad violations of antitrust acts but rely heavily on evidence from Microsoft competitors, notably browser company Netscape.