Microsoft's share price tumbled in early New York trading but the firm took heart from a statement by the Court of First Instance, the EU's second-highest tribunal, that it had a "prima facie" case against the European Commission.

"I remain optimistic that we will prevail at the end of this process," Brad Smith, chief legal counsel for Microsoft, told reporters in a conference call.

The commission, however, rebuffed an overture from Bill Gates's company to hold fresh negotiations in a bid to reach an out-of-court settlement along the lines of a deal with US anti-trust authorities.

"The commission's decision of March 2004 stands. Therefore by definition we are not in the process of renegotiation," commission spokesman Jonathan Todd told reporters.

"The court has confirmed that decision. It should be implemented immediately," he said.

Brussels imposed the fine of 497 million euros (665 million dollars) in March after finding that Microsoft had abused its overwhelming dominance in software for personal computers.

After a five-year investigation, it ruled that the company had to offer a European version of its Windows operating system without the Media Player utility, which offers access to audio and video content.

Microsoft was further ordered to provide competitors with the software interface code they need to enable their products to communicate with Windows.

The company wanted the Luxembourg-based court to suspend the remedies until the court could eventually rule on its appeal against the entire commission ruling, which is likely to take at least 18 months.

But the court rejected Microsoft's argument that it would "suffer serious and irreparable damage" if the measures took immediate effect.

"Microsoft's application for interim measures is therefore dismissed in its entirety," it said.

However, the court added that Microsoft's case was "not at first sight unfounded and that the requirement that the applicant establish a prima facie case... is, consequently, satisfied".

The requirement to detach Media Player in particular strikes at the heart of Microsoft's business model, which involves tagging extra products onto Windows and marketing the operating system as an all-in-one suite of applications.

Smith said the company intended to make a website available later Wednesday that will explain how rivals can obtain its interoperability information.

It will make a European version of a stripped-down Windows without Media Player available to computer manufacturers during January. It should be available for sale in February, the lawyer said.

But consumers will remain free to download Media Player or rival utilities, such as RealPlayer, from the Internet.

Microsoft said it had hoped that the court would suspend the remedies, but "we are encouraged that the court has recognised that Microsoft has a number of powerful arguments that must be considered in the full appeal".

A company statement argued that the commission's remedies "will bring very few benefits to competitors and consumers in Europe".

But the commission remained adamant that its pursuit of the world's biggest software company was in the interests of consumers and innovation.

"Implementation of the commission's March decision will not only benefit consumers of computer products in terms of choice of media players and choice of work-group servers, but also stimulate innovation," it said.

At 1528 GMT, Microsoft was trading down 12 cents, or 0.44 percent, at 26.95 dollars in New York.

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